This article has 285 comments

  1. I think this is a great and huge addition to our PF portfolio. I wish the media would make a bigger deal out of it. I like that it’s a flat $5000 for everyone regardless of income.

    I have a question though; contributions are not tax deductible, but what about interest paid on money borrowed to make contributions? If this is a parallel to RRSPs, then the answer would be no. But the contributions are made with after tax dollars, so maybe??
    Oh, wait, I already got the answer. No.

  2. I’m with you, CC. What a fantastic development. These TFSAs have the potential to create huge wealth for Canadians. The only thing that could make them better would be to make contributions to the TFSA tax deductible as are RRSP deposits, but that’s just me being greedy.

  3. I’m curious as to what happens if you transfer pre-existing investments into a TSFA. Will it be like an RRSP whereas you have to pay capital gains, if you make a profit, but can’t claim capital losses if you don’t???

    I’m also excited over the fact that I can now hold some ‘safer’ investments outside of my RRSPs… which will be very useful when saving for those expenses with a short term horizon.

    This really does add a whole new dimension to tax effeciency!

  4. My mind is racing… 🙂

  5. Canadian Capitalist

    Kris: There is no explicit mention of how contributions in-kind will be treated but my guess is that it will be just like RRSPs, just because a lot of features of the account are similar to RRSPs. You’re right that TFSA will be a great location for interest-bearing instruments.

    GIV, noblea: I am very enthusiastic about the new account. There is hardly any downside and it is a great place to put savings.

  6. I would think contributions in kind from a non-registered account would not be taxed going in as long as the contribution doesn’t exceed $5000, reason being is both are from after tax dollars. But then again it raises the question if you purchase a stock in a non-registered account, transfer it in and then sell the stock in the TFSA, then you could withdraw tax free. I am interested in the details. Food for thought.

  7. I think this is fantastic and I also think the rrsp vs mortgage vs tsa debate will be pretty neat – we need a new horse to beat to death! 🙂

    I think this will encourage saving for sure. It might even help some people with their retirement savings since a lot of people can’t get their head wrapped around the tax deferral of the rrsp and think they are somehow losing money when they pay tax upon withdrawal. The tsa might encourage those people to save.

  8. I like the idea. Like to see the details though. Ideally, it should be indexed for inflation .

    The downside is that the financial industry will now flood the market with even more PPN’s as a selling tool to “protect” the contribution in the account. The 2009 RSP season is just going to be ugly in terms of bad products being launched.

    There is also an opportunity to buy mutual fund company stock since there is another avenue for the industry to pump money out of our pockets.

  9. Great plan by the government to encourage savings, but not necessarily cost them a lot of money. Although I would have liked to see them spend a little more, or reduce taxes with that whopping surplus.

    At any rate, now we have the equivalent of the Roth IRA in the US. Even better, the $5k rolls over like unused RRSP contributions. I think I’ll use my tax refund courtesy of RRSP contributions to fund my TFSA.

  10. I was going to say the same thing about the Roth IRA analogy, but the TFSA is actually much more flexible. With the Roth, you are only allowed to make early withdrawals of up to $10,000 for buying your first home (and maybe also for costs of education, I can’t remember).

  11. Canadian Capitalist

    Mike B: It’s not clear how in-kind contributions would work but if it does the way you describe, it will be a huge bonus for people who have investments with very low ACB.

    Mike: You’re right about beating a new horse now. I already saw some articles discussing mortgage versus TFSA.

    Thicken: The budget document mentions that the contribution limit is indexed to inflation in $500 increments. It is true that stupid investments will continue to be so. Bay Street is so good at introducing products to meet new “demand”.

  12. CC:

    I guess I’m exposing my relatively recent arrival to your blog, but where do you stand on the paying down the mortgage or beefing up RRSP contributions debate and what, if any, empirical evidence do you have to support your stance? Just curious as someone who has debated this internally for some time. I ran numbers and it seems that no matter what assumptions I made, contributing to the RRSP always came out on top in the long run.

  13. Leading Edge Boomer

    It will be interesting to see if banks and and other financial institutions design high interest TFSA accounts to encourage people to park their cash with them.

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  15. I’m no financial expert, but I’m not sure the TFSA the greatest thing since sliced bread that the conservatives claim it is.

    Firstly, it is nowhere near what the conservatives originally promised regarding capital gains being tax exempt if reinvested within 6 months.

    Second, it is being pimped as a great way to save for a car, a home reno, etc. If you’re going to have this kind of short-term turn around – where you are cashing out in 3-5 years – you had better invest in something pretty secure. Well guess what! Thousands of people already save for such items in “high interest” savings accounts like PC Interest First (3.78% – 4.0%). Do you think that any of them have ever recorded as taxable income the paltry $189 in interest on their $5000 saved?

    Third, if you suffer capital losses on this money, you won’t be able to write them off. So, once again, you’d probably be wise to restrict this account to low risk investments (unless perhaps you have a long-term outlook and assume that all investments eventually go up).

    And fourth, you can’t write of interest from an investment loan for instruments bought inside the TSFA. So it appears to be of little assistance to people using the smith manouever or cash flow dams to convert non-deductable debt to deductable debt.

    Now don’t get me wrong, the TSFA is still useful. If your non-registered portfolio consists of some secure investments like GICs and some stocks, you may as well put as much of your low risk, interest-earning investments in the TSFA as you can and save a few bucks. It will also offer a small, albeit useful contribution to income splitting. But for me, it ain’t even close to what the conservatives originally promised.

  16. Canadian Capitalist

    cnidog: You won’t find me arguing that the TFSA is anything like the capital gains exemption. That said, the original “promise” was very vague and probably impractical. And critics with some justification would argue that the capital gains exemption is a tax break for the risk. Also, since when did campaign promises mean anything?

    If anyone receives $50 or more in interest income, a T5 is issued and has to be reported in taxes. Even for small amounts, I simply add up interest payments and report it in my taxes. Not the worth the risk of “forgetting to declare” in my opinion.

    I do question the notion that TFSA saves a “just a few bucks”, as one prominent economist claimed in a CBC interview today. It’s true that initially the tax savings aren’t huge but over time, the advantages afforded by the new savings scheme is tremendous.

  17. CC: Maybe I’m jaded, but I often find that the savings espoused by experts are based on optimistic returns and assumptions about high marginal tax rates. Not everyone is going to earn 10% on average on their investment and the average Joe on the street often doesn’t have a 40% marginal tax rate.

  18. Canadian Capitalist

    cnidog: Taxes in Canada are a killer on investments. Even someone earning $38K in ON faces a marginal tax rate of 31.15%. I would definitely agree with you that TFSA won’t bail us out of poor investing. We still need to invest responsibly to achieve financial success.

  19. i see the opposite.

    if you have a stock position that is sitting on massive gains (either from being very speculative or having held it for a long time), you can transfer it in to the TFSA, sell, and then withdraw it and reinvest it outside.
    this way you still get the ‘benefit’ of capital losses outside the TFSA, but don’t pay capital gains on the upside.
    since it’s a cumulative contribution amount, plus spousal plan options (?), in 5 years, you could be sheltering 50K in gains ($9000 a year tax savings at 36% marginal rate)

  20. I read a comment that you cannot take a loan to invenst money into this registered account and claim the interest as a deduction, is that true?

  21. Canadian Capitalist

    DividendMan: It’s true. Refer to Page 274:

    Because the investment income within, and withdrawals from, a TFSA will not be taxable, interest on money borrowed to invest in a TFSA will not be deductible in computing income for tax purposes.

  22. I think the transfer from non-registered accounts in-kind of securities with an unrealized capital gain will trigger a deemed disposition – not sure, but that’s my guess.

    There are many opportunities for the TFSA. Including from an estate planning perspective: you can roll-over the assets of the TFSA to a successor account holder tax-free (say a spouse). The remaining spouse can transfer to the children tax-free as well.

    You can contribute to an RRSP in a high tax year, and withdraw in a low tax year and immediately put funds in a TFSA.

    It’s great for those who are low tax bracket now and low tax bracket in retirement as it might be the retirement savings vehicle of choice while the RRSP becomes the short term savings vehicle. The TFSA withdrawals won’t affect income tested benefits and credits so it would make more sense to use it for retirement for people in this situation, and the income tested benefits and credits might not be available to people before they are 65 so any funds in an RRSP can be withdrawn before then without affecting those benefits.

    I can see many strategies for this, and yes more fodder for some old debates!

  23. Wow! This is so fantastic. Finally something like a Canadian version of the American Roth but without all the penalties. I can’t wait to open an account in 2009. What a great place to store your tax refund.

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  27. The potentially interesting part about the ‘no deduction for interest on money borrowed to invest in a TFSA’ thing is that there is potential that the brokerages could calculate margin availability based on the value of both the TFSA and non-registered accounts. So in effect you could be able to borrow against the value of the TFSA for investment outside the TFSA and deduct the interest. The brokerage house has their ‘assets’ covered because if you do get a margin call you could withdraw from your TFSA to cover it.

    This TFSA has the potential to be a very nice little financial tool. The only slight catch with it is that you have to do a little bit of planning for it to really pay off. This is going to be an amazing tool for young people just starting out. They can save for a down payment on a house, they can save for buying a car, they can start up an investment account without starting up an RRSP and being scared that the RRSP money is locked away ‘forever’ and then they can make a contribution from their TFSA to their RRSP when it makes sense to them.

  28. So what kinds of things can you put in a TSFA? Is it all the stuff currently elligible for RRSP or are there more/less restrictions? Withdrawals are still taxed as income in that year correct?

  29. Everything that is eligible for RRSPs are eligible for the TFSA. Withdrawals are *not* taxed at all which is the main reason for the account. Contributions do not generate a tax deduction so withdrawals do not generate tax. The TFSA is basically the inverse of an RRSP. RRSP contributions are tax free but withdrawals are taxed, the TFSA contributions are taxed but the withdrawals are not. In both accounts the investments inside the account grow tax-free.

  30. Just to be clear when I say that TFSA contributions are taxed I mean that you pay whatever tax you had to pay to generate the cash (whether that is income tax, tax on interest, tax on capital gains, tax on dividends doesn’t really matter) so it isn’t like that is an additional tax on cash that is contributed to a TFSA, you just don’t get a tax deduction on contributions like you do with an RRSP.

  31. I think the biggest benefit, that I can see, is for my elderly relatives that all have RRIF’s and can no longer contribute to their RRSP’s, this will help them a lot since all of their income is interest on savings, and by the time we all become seniors it might be a very significant part of our retirement savings.

  32. Canadian Capitalist

    Steve: Exactly. I’m surprised that the naysayers don’t realize how great a savings tool the TFSA will become over time. In just 10 years, between an individual and spouse, the TFSA will have more than $100K in contribution room alone. It’s hard to find a downside to the account – it will be a great place for emergency savings, saving for a renovation or a vacation or an automobile, saving for a downpayment. Seniors and others receiving income-tested benefits can withdraw without worrying about how it will affect their benefits. Overall, I think it is a great new tool for savings.

  33. I wonder what the financial institutions will charge as a fee to “manage” such an account?

  34. thanks for you article.i will share it with my boomerpartner on meet on . c o m

  35. Hello,
    Most articles on the new TFSA mention the tax savings are identical to an RRSP. You either pay tax up front or at withdraw time. Am I missing something? It appears to me if 5,000 dollars in an RRSP grows for 20 years to become 25,000 you have pay tax on 25,000 as you withdraw. 5,000 dollars in a TFSA that grows to 25,000 in 20 years only paid tax on the original 5,000?

    Anyone able to point out where my thinking is incorrect?

  36. Canadian Capitalist

    Greg: The $5K you put in a RRSP was before taxes, so you would have received a tax refund for your RRSP contribution which can also be put back into the RRSP. If your tax rate during contribution and withdrawal are exactly the same, the RRSP and TFSA would offer identical benefits.

  37. I am willing to forgo a tax reduction from an RRSP contribution today in order to receive a tax free withdrawl from a compounded investment or deposit.

  38. If you could find a way to get this account big-fast you would have a seriously unbalanced and unfair advantage over most people.
    What exactly can this TFSA invest in? So far I hear, stocks, bonds and GIC’s.
    No real estate, or owning your own mortgage investing available?

  39. Should be able to own anything you can own in RRSPs. Stocks, options, bonds, GIC, ETF, mutual funds, bullion, and your own mortgage too. But I think the admin fees to set that up are pricey, plus I assume you have to have the 200K (whatever the mortgage amount is) in your TFSA first before you can loan it out to yourself in the form or a mortgage.

    Now that I’ve thought about it, not being able to claim capital losses for stock held inside the TFSA is really of no consequence. Capital losses can only be applied against capital gains. You’re just reducing the tax hit of capital gains, you’ve already lost the money. TFSA does the same thing, and better by not taxing you on capital gains, period. Having a capital loss outside the TFSA is only useful if you have capital gains outside the TFSA.

    CC, did you mean to say “If your MARGINAL tax rate during contribution and AVERAGE TAX RATE at withdrawal are exactly the same, the RRSP and TFSA would offer identical benefits.”? Or am I not understanding the situation?

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  41. This is especially good because it also illustrates that an RRSP provides effectively tax free growth – which most people don’t understand. When you compare the RRSP after tax result with the TFSA and see that they are the same – and then consider that the TFSA is truly tax free growth the tax effectivness of the RRSP becomes clear.

    Here is a defining example. Assuming 35% marginal tax rate throughout. Put $1000 in an RRSP – you get $350 tax reduction so that your out of pocket cost is actually $650. At the same time put $650 into a TFSA. The cost for each is the same (although the RRSP balance shows as $1000 – but that is before redemption). Say you wait until these two accounts double in value. RRSP now shows as $2000. and the TFSA shows as $1300. Cash them in – you pay $700 tax on your RRSP (35% Marg Tax Rate) and have $1300 after tax – double your actual $650 cost. Also you cash in your TFSA – no tax. Same $1300. Both give you effective tax free growth as long as your tax rate is the same. Because of impact of GIS and OAS clawback, clawback of age amount and other social clawbacks such as pharmacare deductibles the effective marginal tax rate for the RRSP is often higher in retirement than while working.

    It is interesting to note that even the so called advantage of a tax refund for an RRSP contribution is illusory. Is it any better to have to put $1000 in an RRSP to get $350 back than just putting $650 in the TFSA instead. Both leave you with $650 less in your pocket at the time of contribution and both are worth the same at redemption.

  42. I’m surprised nobody has pointed out we have yet another debate brewing here: that being TFSA vs. RESP.

    Sure you miss out on the CESG but on the flipside, if your children don’t head off to a qualified institution or you’re out of RRSP room…yikes.

    At least I’ve got a year to think through how I may be able to best fit this into my overall strategy.

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  44. One of the big benefits, I think, is for families that have one big income earner, and a stay at home parent. The spousal RRSP should be maxed out, then after the holding period (3 yrs), the stay at home parent can withdraw enough each year to reach the exemption limit and then move that cash over to the TFSA. All that money has now become tax free from the time it was earned to the time it will eventually be spent.
    This would have to be done in 3 or 4 yr spurts (due to attribution rules). For a high income earner in the top bracket, this could have the effect of saving approx 2K every year in taxes and even more in the future due to the tax free withdrawals of the TFSA.

  45. I think this new TFSA is one of the best ideas to come out of government in a long time. If a young person is able to put money into this account over their entire working life, they will have a a lot of money to withdrawl tax free in their retirement. As a bonus, they may still be able to collect old age pension and other available government money. The only downside I see to this, is the provinces (especially Ontario) taxing the income generated in the plan each year. I also see future federal governments scalling this program back or making people include the income generated in the plan be includeing in Net Income for eligiability in various social programs, once they realize how much tax revenues this plan will cause future governments to forgo. Starting next year, take full advantage of this plan !!

  46. What a joke, I can not believe people for for these government scams – are you all really *this* stupid?

    The money you put into this is *after tax* – Rev canada has already taken 33% or more of your income out of your pocket before you can even think about investing it. So lets say you invest it at what 4% tops? Inflation sits around 2% so you are making 2% and you dont pay tax on this – big deal! Its peanuts compared to the wad of cash that has been ripped out of your back pocket already.

    And what about the cost of managing these accounts? Taxes pay the wages of people whose job it will be to police the rules -so you are going to have to pay more taxes for the privilege of not paying taxes!

    Come on people wake up and smell the ripoff.

  47. Canadian Capitalist

    webb: Very few people pay a higher average tax on RRSP withdrawals than the tax rate on their contributions. That’s a key advantage of RRSPs and will remain so.

    Wealth Manager: Tomorrow’s post will compare RESP with a TFSA.

    MarkL: It’s certainly possible that the rules can be changed in the future. Look at how many rules have been changed/tinkered with in RESPs and RRSPs in just the past few years.

    Anon: The TFSA now allows you to earn a 2% real return compared to 0.64% you would have in a taxable account using your example. That is 3 times more than earlier. How does that qualify as a “ripoff” or a “scam”?

    Now in the first year you are right that your savings amounts to peanuts. But in 5 short years, a household of two adults can save $660 in taxes by taking full advantage of these accounts. I don’t know about you but it is not peanuts anymore to me.

  48. It is absolutely good news to those who have investments in their non-RRSP account. They can gradually move their investments into TFSA ($5000 a year) and don’t have to pay any tax on any capital gains, dividend income, etc. There is also a lot less works to be done at income tax time for someone who did a lot of trading during the year as there won’t be any need to calculate and report the capital gains/losses inside the TFSA. Last but not least, don’t forget that you can have both RRSP and TFSA at the same time.

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  50. I ran a few scenarios in Excel: deposit $5000 per year into a TFSA vs. a regular non-registered account. The assumption is that returns will be fully taxable in the regular non-registered (which is only valid for fixed income investments)

    Case 1: 40% marginal rate, 4% annual return
    In TFSA after 20 years: $148,890
    In regular non-reg. after 20 years: $126,445
    Benefit: $22,445 or 17.8% more savings

    Case 2: 30% marginal rate, 4% annual return
    In TFSA after 20 years: $148,890
    In regular non-reg. after 20 years: $131,652
    Benefit: $17,239 or 13.1% more savings

    Case 3: 40% marginal rate, 6% annual return
    In TFSA after 20 years: $183,928
    In regular non-reg. after 20 years: $142,860
    Benefit: $41,068 or 28.7% more savings

    Case 4: 30% marginal rate, 6% annual return
    In TFSA after 20 years: $183,928
    In regular non-reg. after 20 years: $152,018
    Benefit: $31,910 or 21% more savings

    So as a long term investment tool, the difference is not peanuts.

  51. My question about the TFSA is whether the provinces are obliged to treat returns in such accounts as tax-free for the purpose of provincial tax payable. I believe the rule outside of Quebec is that the provinces have to accept the federal definition of net income and can only fiddle with the tax rates on net income and certain tax credits?

    If so, then would this mean that the provinces must treat returns within a TFSA as non-taxable income or have to exit the agreement to let Ottawa collect their provincial income taxes for them?

  52. Canadian Capitalist

    JW: I believe the provinces have to play along for exactly the reason you cite. But I don’t know enough to say for sure. People routinely underestimate how corrosive taxes are on investment gains as your numbers clearly show.

  53. Is there a way to house a real estate investment in the new TFSA? If so, what would happen after 5 years when the investment is sold and there was a net profit?

  54. Canadian Capitalist

    Kerr: I might be wrong but I don’t see how you can out a real estate investment within a TFSA. For example, you can hold a mortgage within a RRSP but it doesn’t make sense for small mortgages due to the fees involved. Holding a mortgage within a TFSA will not be an option in the initial years after it is introduced due to the $5K annual contribution room growth.

    • Own shares in a real estate company that owns real estate.

      Shares in privately held Canadian Controlled Private Corporations are TFSA elligible.

  55. I am new in Canada. I hardly understood RRSP it means we put our money in RRSP but we can’t withdraw whenever we need for other than Mortgage. Second the hot news of budget of 2008 is TFSA. My questions are :
    how much money should I diposit for the statrt?( minimun)
    What happen if I couldn’t diposit every year or same amount?
    After how lomg we can withdraw our money? Should we pay any charge for this? if ther is no any penalty or charge then thats difference this TFSA and Saving account that we currently have.

    Can somebody help to clear about this.
    thank you

  56. Canadian Capitalist

    Binda: The annual maximum allowed contribution to a TFSA is $5,000. The minimum is up to you.

    You don’t have to contribute every year or even contribute the same amount every year. Your contribution room increases by the amount of contribution you did not make.

    I believe there won’t be any restrictions on when you can withdraw your money. Regarding fees, we have to wait and see what the financial institutions come up with.

    I highly recommend reading the brochures and media articles on the new account. You can find them under the category TFSA.

  57. cnidog – it’s not $5000 they can save for 3-5 years. It’s $5000 PER YEAR. If you’re saving for 5 years, that’s $25000 in the account for an average of 2.5 years, so it earns about $2500 in interest at 4%, and you’d be saving about $1200 in taxes at the highest bracket. Sign me up.

    (And yes, I do claim my bank account interest as income. Does that make me a chump? I didn’t know it was considered optional.)

  58. Patrick: You are right – reporting interest income is NOT optional. By law, everyone has to report it regardless of whether their financial institution issues them a T5 or not.

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  60. I see that Ontario has confirmed that TFSA will be tax-free for provincial tax purposes.

  61. So whats the deal if, after it’s ready, I take my TFSA income and use it to contribute to RRSP. Then taking the return back into TFSA now that there is room of course.

    Am I getting a tax break on tax free money? sounds too good to be true. Can someone with a head for math tell me if there is a real advantage there?

  62. I have played a lot with the TFSA, using the actual taxation math, not simply average or marginal tax rates. (remember, income tax is time dependant… the tax brackets are indexed)

    I simply cannot make a case for doing anything other than maxing your TFSA (if you can) and dumping the remainder into your RRSP.

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  64. I think you people have gotten all wrong..
    the TFSA has been running for as long as I have been alive. It’s call your home. it’s the same thing tax free…
    And NO an RRSP is not better then a non registered accounts, because people alway assumes that an investment is sold every year which it’s not thats not long term investing folks…and bonds are not a good investment outside an RRSP..

  65. Canadian Capitalist

    Walter: You’ll have to elaborate a bit more because I don’t understand your point about how RRSP is not better than taxable accounts. TFSA is not the same as home ownership. It will allow you to save for a trip, stash your emergency fund or save for a car and not pay tax on interest earned within the account. How do you accomplish that using a home?

  66. Re: RRSP bad list:
    manditory withdraw required over 71 (as a%)
    loss of tax credits. divdends, other.
    restrictive types of investments. (everything must be arms legth)
    cannot levage.
    limited contribution amounts per year.
    and the list goes on.
    Non: is the opposite of a RRSP with one really big one that would be to deduct interest payments from regular income.

    My last point regarding your home as the same as the TFSA.
    it’s just that as canadains the biggest investment that one has is their home. I’ve been in real estate since I was 17 and as equity buildings one can remove that equity and do what ever with it with the biggest thing being that there is no limit to the amount that you can contribute each when you sell your home it is all tax free..In short if people looked at everything as if were a investment they would understand things better.

  67. Canadian Capitalist

    Walter: Sure, there are drawbacks but can you work around them? Absolutely you can. And don’t forget the really big advantage: you are saving tax at the marginal rate when contributing and (for the vast majority) paying less taxes during withdrawal and tax deferral on all income earned within the RRSP. Now, let’s look at your list:

    – mandatory withdrawal: If you have too much, retire early and plan your withdrawals years ahead.
    – loss of tax credits: Keep Canadian equities in a taxable account. Even if you don’t, depending on how much tax you pay on dividends, a RRSP might still come out ahead. Interest and foreign dividends are not taxed within a RRSP allowing money to truly compound.
    – restrictive types of investments. So what? I’m only interested in bonds, stocks and ETFs anyway and they are all eligible.
    – cannot leverage. So? It’s really hard to make money by leveraging to invest in equities.
    – limited contribution amount. How many people are able to save 18% of their pay check?

    Bottomline: There is nothing stopping you from doing a RRSP and investing outside and it all depends on everyone’s financial situation. For most people, who have a paycheck and regular earned income and don’t have a pension at work, a RRSP is a really good savings option.

    Taking out equity for consumption (say buying a car) means you have to pay interest with after-tax income. And what about people who already own their home? Ultimately, a RRSP, TFSA or paying down the mortgage are all options that could be ideal under different circumstances. IMO, it is good to have all these options and that’s why I think the TFSA is an excellent idea.

  68. Canadian Capitalist, I think we’re talking about the same thing but, in a difference of using the same tools under the tax rules. And yet there are stats to my points. if you use the theory of bowwering 100k to invest, the interest will always be deductable at your top marginal rate every year reguardless of the investment out come. by doing this it’s a forced savings where as an RRSP is optional/choice. As we are all human beings the best why to become financially secure is to enter into a forced savings method. which most people don’t do…it’s also know as pay yourself first…as all canadains force them selves to purchase their home the saving for that asset is in fact a forced savings plan which is leveraged. To pull equity out of ones home to purchase consumables are not good but, in fact Stats Can has stated that a greater number of Canadians have been do just that. It would be better if this (TFSA)was a required contribution vs an optional one.

    (this is a little off topic but) Canadians have been following suit with the US regarding an ever smaller amount of savings and yet consumerizim is on the increase.. Canadians on avgerage have little or no room in their disposable incomes or savings to cover an increase of interest payments, as interest rates will start rising this year. Which is determined by inflation. we’ll see how this plays out over time..

  69. Canadian Capitalist

    Walter: I’m a huge proponent of saving and a big fan of paying down the mortgage. I also believe that homeowners (as long as they buy a home that fits well within their budget) tend to come out ahead because of the forced savings in the form of a mortgage. But, I think there is a vast difference between leveraging to purchase a personal residence and leveraging to invest due to the fact that evidence suggests most people are poor investors. They chase returns and buy yesterday’s winners, they sell at the wrong time, pay no attention to taxes and expenses, boast about their “hot” stocks but not their dogs (i.e. have no idea what their returns are) etc. Leveraging just magnifies these bad habits. If they didn’t have the discipline to save a little bit, how will they have the discipline of investing a large chunk of borrowed cash wisely?

  70. Canadian Capitalist, you are correct about people and their poor investment style but, that goes back to the lack of education in investing. Keeping in mind that 80% of mutual funds don’t equal the return of the exchange. The easist way is to buy the market vs paying for a poor performance from a fund manager year after year.
    say that, It just goes to show that the 2 of us are above the norm of investing then the average canadian.
    Your comment about “paying no attention to taxes and expanses” I not sure if your referring to the average Canadian or to the politicians who don’t have a clue as to what a balance sheet looks like!

    I still know that an RRSP is a bad deal at the end of the day. Have you read the report from the senate on the negitive effects of an RRSP to lower to medium income earners? Its a good read.

  71. take 5000/year over 35yrs @ 7.5% = 721000.00 tax free show me a pension that gives that kind of return.

    on the 35 year you will be earning $54000.00 in interest sounds pretty god to me.

  72. Donovan,
    However, due to inflation, the buying power of your $54,000 in 35 years will purchase about $22,000 of goods.

    The TFSA is only one part of a well managed financial plan. It’s limitation is the $5,000 annual cap, and the lack of a tax return on today’s money.

    If you were earning $70,000 and therefore in the 33% tax bracket (BC), for $5000, you can buy about $7500 of RRSP. At 7.5% this accrues over 35 years to $1,156,887, and at year 35, generates $86,766 in annual taxable income. If on withdrawal, this income is taxed at your average tax rate (currently 25.73% in BC), you would have $65,864.37 to spend.

    I believe the RRSP is about $11,800 or 22% better.


  73. Donovan, A pension plan is not quite the same thing as this type of an account. Besides at 7.5% in bonds is not easy to get these days.. 5-5.5% is about right. I don’t belive for a moment that people won’t use this as a regular bank account and there fore your calculations will be wrong as the account would be =< $5k at anytime going forward..

  74. David,

    You’ll note that the allowance will be inflation adjusted, at an increase of 500 per year! This was not included in Donovan’s calculation either…



    How the Tax-Free Savings Account Will Work

    Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
    Contributions will not be deductible.
    Capital gains and other investment income earned in a TFSA will not be taxed.
    Withdrawals will be tax-free.
    Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits.
    Withdrawals will create contribution room for future savings.
    Contributions to a spouse’s or common-law partner’s TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death.
    Qualified investments include all arm’s-length Registered Retirement Savings Plan (RRSP) qualified investments.
    The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
    (Source: 2008 Budget)

  75. Savings for married couple over 35 years at initially $5000 each per year, increasing by $500 each per year thereafter.
    Compounded Annually

    Date Value Interest Rate Interest Lump Sum
    1 1. January 2009 10000 5.00% 500 $11,000.00
    2 1. January 2010 $21,500.00 5.00% $1,075.00 $12,000.00
    3 1. January 2011 $34,575.00 5.00% $1,728.75 $13,000.00
    4 1. January 2012 $49,303.75 5.00% $2,465.19 $14,000.00
    5 1. January 2013 $65,768.94 5.00% $3,288.45 $15,000.00
    6 1. January 2014 $84,057.38 5.00% $4,202.87 $16,000.00
    7 1. January 2015 $104,260.25 5.00% $5,213.01 $17,000.00
    8 1. January 2016 $126,473.27 5.00% $6,323.66 $18,000.00
    9 1. January 2017 $150,796.93 5.00% $7,539.85 $19,000.00
    10 1. January 2018 $177,336.78 5.00% $8,866.84 $20,000.00
    11 1. January 2019 $206,203.61 5.00% $10,310.18 $21,000.00
    12 1. January 2020 $237,513.80 5.00% $11,875.69 $22,000.00
    13 1. January 2021 $271,389.49 5.00% $13,569.47 $23,000.00
    14 1. January 2022 $307,958.96 5.00% $15,397.95 $24,000.00
    15 1. January 2023 $347,356.91 5.00% $17,367.85 $25,000.00
    16 1. January 2024 $389,724.75 5.00% $19,486.24 $26,000.00
    17 1. January 2025 $435,210.99 5.00% $21,760.55 $27,000.00
    18 1. January 2026 $483,971.54 5.00% $24,198.58 $28,000.00
    19 1. January 2027 $536,170.12 5.00% $26,808.51 $29,000.00
    20 1. January 2028 $591,978.62 5.00% $29,598.93 $30,000.00
    21 1. January 2029 $651,577.55 5.00% $32,578.88 $31,000.00
    22 1. January 2030 $715,156.43 5.00% $35,757.82 $32,000.00
    23 1. January 2031 $782,914.25 5.00% $39,145.71 $33,000.00
    24 1. January 2032 $855,059.97 5.00% $42,753.00 $34,000.00
    25 1. January 2033 $931,812.96 5.00% $46,590.65 $35,000.00
    26 1. January 2034 $1,013,403.61 5.00% $50,670.18 $36,000.00
    27 1. January 2035 $1,100,073.79 5.00% $55,003.69 $37,000.00
    28 1. January 2036 $1,192,077.48 5.00% $59,603.87 $38,000.00
    29 1. January 2037 $1,289,681.36 5.00% $64,484.07 $39,000.00
    30 1. January 2038 $1,393,165.43 5.00% $69,658.27 $40,000.00
    31 1. January 2039 $1,502,823.70 5.00% $75,141.18 $41,000.00
    32 1. January 2040 $1,618,964.88 5.00% $80,948.24 $42,000.00
    33 1. January 2041 $1,741,913.13 5.00% $87,095.66 $43,000.00
    34 1. January 2042 $1,872,008.78 5.00% $93,600.44 $44,000.00
    35 1. January 2043 $2,009,609.22 5.00% $100,480.46 $45,000.00

  76. The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

    This doesn’t quite make sense…perhaps every 3-4 years will be the $500 increment? What do you reckon?

  77. Sorry bout the refinements…Here is for one contributor, with 500 increase every 4 years.

    Year Number Date Value Interest Rate Interest Lump Sum
    1 1. January 2009 5000 5.00% 250 $5,000.00
    2 1. January 2010 $10,250.00 5.00% $512.50 $5,000.00
    3 1. January 2011 $15,762.50 5.00% $788.13 $5,000.00
    4 1. January 2012 $21,550.63 5.00% $1,077.53 $5,000.00
    5 1. January 2013 $27,628.16 5.00% $1,381.41 $5,500.00
    6 1. January 2014 $34,509.56 5.00% $1,725.48 $5,500.00
    7 1. January 2015 $41,735.04 5.00% $2,086.75 $5,500.00
    8 1. January 2016 $49,321.79 5.00% $2,466.09 $5,500.00
    9 1. January 2017 $57,287.88 5.00% $2,864.39 $6,000.00
    10 1. January 2018 $66,152.28 5.00% $3,307.61 $6,000.00
    11 1. January 2019 $75,459.89 5.00% $3,772.99 $6,000.00
    12 1. January 2020 $85,232.89 5.00% $4,261.64 $6,000.00
    13 1. January 2021 $95,494.53 5.00% $4,774.73 $6,500.00
    14 1. January 2022 $106,769.26 5.00% $5,338.46 $6,500.00
    15 1. January 2023 $118,607.72 5.00% $5,930.39 $6,500.00
    16 1. January 2024 $131,038.11 5.00% $6,551.91 $6,500.00
    17 1. January 2025 $144,090.01 5.00% $7,204.50 $7,000.00
    18 1. January 2026 $158,294.51 5.00% $7,914.73 $7,000.00
    19 1. January 2027 $173,209.24 5.00% $8,660.46 $7,000.00
    20 1. January 2028 $188,869.70 5.00% $9,443.49 $7,000.00
    21 1. January 2029 $205,313.19 5.00% $10,265.66 $7,500.00
    22 1. January 2030 $223,078.84 5.00% $11,153.94 $7,500.00
    23 1. January 2031 $241,732.79 5.00% $12,086.64 $7,500.00
    24 1. January 2032 $261,319.43 5.00% $13,065.97 $7,500.00
    25 1. January 2033 $281,885.40 5.00% $14,094.27 $8,000.00
    26 1. January 2034 $303,979.67 5.00% $15,198.98 $8,000.00
    27 1. January 2035 $327,178.65 5.00% $16,358.93 $8,000.00
    28 1. January 2036 $351,537.58 5.00% $17,576.88 $8,000.00
    29 1. January 2037 $377,114.46 5.00% $18,855.72 $8,500.00
    30 1. January 2038 $404,470.19 5.00% $20,223.51 $8,500.00
    31 1. January 2039 $433,193.69 5.00% $21,659.68 $8,500.00
    32 1. January 2040 $463,353.38 5.00% $23,167.67 $8,500.00
    33 1. January 2041 $495,021.05 5.00% $24,751.05 $9,000.00
    34 1. January 2042 $528,772.10 5.00% $26,438.61 $9,000.00
    35 1. January 2043 $564,210.71 5.00% $28,210.54 $9,000.00

  78. I’d hate to say it but, your asumptions aren’t right.. Your assuming that A) someone wouldn’t withdraw anything from the account in 35 years and B) no allowance for the bond price to fall netting a possible negitive return…
    on top of that if this TFSP is the same as a RRSP then one could prepay any amount (as long as you don’t over claim it)
    For example deposit $100,000. And every year claim the 5+K as its the same method that can be used in an RRSP.

  79. Walter,
    Point A) Everyone is different in their savings habits. If you treat the TFSP as an untouchable investment vehicle, then this assumption holds true.
    Point B) If you think that 5% (keeping in mind inflation is accounted for) is unreasonable…what do you think would be a reasonable average return rate to use? Also keeping in mind that there are many RRSP elibible investment vehicles with varying return rates.

    I do not believe you can prepay. You can only contribute retrospectively to your cumulative yearly limit.

  80. Canadian Capitalist

    Great discussion guys. Some clarifications:

    1. Andrew, your comment # 77 is more reasonable. The $500 increment will kick in only if the cumulative inflation-adjustment exceeds $500. Assuming a 2% inflation, it will take roughly 4 to 5 years before the limit will be bumped up to $5,500.

    2. Walter, you cannot prepay either for RRSPs or the TFSA. It’s true that you can make a contribution but not claim a deduction for RRSP but that is only if contribution room is available.

    3. While $5K limit sounds a bit low compared to RRSPs, keep in mind that this is after-tax. For someone in a 40% tax bracket, making the full contribution is equivalent to adding $8,300 to their RRSP.

    4. I agree with DAvid’s point in #72 which is why RRSPs will be superior for people in the middle and top brackets. The RRSP allows income taxes to be deferred to future years.

    5. Ultimately, the TFSA, RRSP and mortgage paydowns are simply savings tools and we have to pick a combination that makes the most sense for our financial and tax situations.

  81. Andrew said: “You’ll note that the allowance will be inflation adjusted, at an increase of 500 per year! This was not included in Donovan’s calculation either…”

    The RRSP is ‘inflation adjusted’ at the rate of increase in your paycheque! Since this could increment at a rate in excess of inflation, in my opinion, it is the better option.

    The TFSA seems to have been created to return Canadians to the habit of saving. The interest-free offering is just the bait to get us hooked. I expect the TFSA will be underused by most Canadians as is the RRSP.


  82. DAvid, I think Andrew has included the $500 for inflation at a reasonable every fourth year.
    Your point “The RRSP is ‘inflation adjusted’ at the rate of increase in your paycheque! ” Only if your paycheck rises besides, the RRSP was exposed to be inflation adjusted but, the government refused to rise the rates for years as it was only in the last few years that they promitted the RRSP limit to be increased. I’m assuming that this is what is going to happen to the TFSA as well.
    I do agree completly with you on the fact the people will underuse this plan. A simple fact is that Canadains are not savers..

  83. Ok, this is a good thing. Anyone that disagrees doesn’t really invest. Currently we are taxed on our money, then we invest it and they tax us again on essentially the same money. It’s not perfect but at least we are making more money from the original money.

    I just have a question and would like to know if anyone knows the answer. If I set up an incorporated investment business, then personally invest in it and pay myself distributions, is there any conflict of interest here?

    If there is not and this would be legal, essentially I could make myself extremely rich with no tax. An example of what you can do is invest your $5000.00 per year into a real estate investment corporation and become the main share holder. Use the invested money as a down payment on an income producing rental property. When the rents and profits are collected I then pay all of the profits to my main shareholder (myself).

    If anyone knows the answer to this please let me know. I will be talking to my accountant as well but if this is the case, a lot of already rich people will make themselves a lot more rich.

    Anyways, just a thought for all of you doubters out there.

  84. The corporation will pay taxes on the income it generates, and you will pay taxes on the distributions you withdraw. The only untaxed portion to you would be the original $5000.

    There ‘aint no thing as a free lunch.


  85. Hey David, I realize the corporation will pay income tax on the money, but if the shares are held within the TFSA, the distributions would go there as well. How would the distributions become taxable after they are paid to the TFSA?

  86. Canadian Capitalist

    Kevin, DAvid, Traciatim: I’m not 100% sure on this but shares of small business may not be eligible property for holding within the TFSA. That would make the following point moot but still:

    When passive income is received by a corporation, it is taxed at a rate equivalent to the highest income tax rate applicable to individuals. So, I don’t think Kevin’s idea would work even if distributions from the corporation to the TFSA are taxed or not.

  87. I stand corrected on the tax free withdrawal of the income distributed by the company. However, I cannot see the TFSA allowing a corporation to be operated within it, as it operates in similar fashion to an RRSP.


  88. DAivd that is correct, the TFSA is expose to be the same as a RRSP in which a small company at non arms length are not allowed as an investment. Plus Kevin your question regarding the 5k as a down payment for an investment property wouldn’t work either as you cannot borrow against the TFSA nor could it hold real estate directly.

  89. Thanks for your help guys.

    So if I understand correctly, distributions of a company are done from profits after tax, they are not considered an expense for the company. Is this correct?

    My understanding of the TFSA is that we would not be taxed on the distributions, this is what I am finding from every source that I check.

    Do you guys know if we can use oil & gas trusts as our investments within a TFSA? Also does anyone here have experience with oil & gas trusts? From everything I find and hear they seem great and have extremely high returns on them on a monthly basis. The downside that I have heard is that eventually the money that you initially invested may be lost.

    I don’t know much about them so if anyone here has any experience or any good source of info on this I would appreciate it.

    Thank you,

    Oh and I just stumbled upon this site and I like it so far, thanks for the good info

  90. Kevin, for someone who writes “Anyone that disagrees doesn’t really invest.” Your asking allot on topics that is outside of the TFSA. A simple yes is in regards to the issue of a dividend payment as in, its always after the company has paid tax.

    Part two of your question regarding oil& gas trusts; there too the answer is yes you can purchase these inside your TFSA. and the downside would apply to any and all companies as there is no guarrenty that any company wouldn’t fail. These companies payout a high percentage for a reason, its sometimes called a risk premium..
    One last thing regarding income trusts, keep in mind that the government has changed its policy on them and they are now forced to change thier taxing model to be more inline with a stardard company for tax purposes..only when a company changes we’ll know by how much less the payout maybe if at all.

  91. Hi Walter,

    My comment about people not really investing is actually in regards to another forum. I copied and pasted this comment onto this forum. On the one that I originally posted this there was a guy that was totally blasting the TFSA and tried to make it sound like it was useless, that is what got me on that saying.

    In regards to my investments, I am currently investing in a revenue properties and am just beginning to further my knowledge in other types of investments. The TFSA sounds like it may offer a lot more opportunities to help to avoid taxes.

    Anyways, no harm meant to anyone here.

    Thanks again for everyones help

  92. Kevin no problem,

    here are some sites for educating one self about the stock market and companies evalulation.
    plus the stock exchanges have education programs.

    Now keep in mind that these sites are for education about stocks NOT about tax issues..

  93. I like the idea. I am in. simple.

  94. Invest your money, pay no tax on the capital gains, and pay no tax when withdrawing your investment, up to $5,000? Sweet! 😀

  95. Here’s a question. If I have a TFSA where I invest $5,000 and buy some high perfoming stock why I then sell for $20,000 and take the $20,000 cash out of my TFSA. Do I have a $20,000 top up available or just a $5,000 top up?

  96. The rule is “you can replace what you remove”. If you withdraw the full $20,000 out of your TFSA then your new contribution room is $20,000 until the next year when you are granted an additional $5,000 (or more) as the the Federal Government’s annual addition.

  97. I’m interested in knowing how a small business owner can take advantage of the TFSA. For example, let’s say I own a small business that is incorporated. Can I contribute $5000.00 worth of shares of my company to my TFSA each year and and then pay myself dividends on those shares tax free? If I contributed $5000 of shares every year, conceivably, I could eventually hold %100 of my company’s shares in my TFSA and all the dividends I pay out to myself would then be tax free. I’m I dreaming? I’ve read the CRA’s QA and it says “certain shares of small buisnesses” can be held in a TSFA.

  98. Hi Dan,

    just to give you a quick answer “yes”. I have to ask this? Why would you payout a dividend vs an interest payment on those shares? as a dividend payment is with after tax dollars (from the company) vs a dollar for dollar deduction for an interest payment?(with no tax paid)

  99. Canadian Capitalist

    Dan: You should consult your accountant. My understanding is that most small businesses would not meet the criteria for qualified holdings.

  100. I would like to know if it is possible to invest $5000 in several FTSAs, each at a different financial institution

  101. Canadian Capitalist

    Margot: No. The TFSA limit of $5,000 applies to an investor’s total contribution across *all* their accounts. There are severe penalties for exceeding the contribution limits.

  102. Margot: yes you could but what would the point being? as these account/s are know to the CRA and they’ll know if you have more then one account. Penities will apply if your over the 5k amount regardless of how many accounts you choose to open..

  103. Thank you, Canadian Capitalist and Walter, for your prompt replies. I had inquired from two banks and both said I could have more than one TFSA for $5000 each. Obviously they didn’t know what they were talking about.

  104. NP, Margot: just a note of caution about banks. As most banks have investment advisors and not all of these people really know much more then what products that they can sell, not what is the right choice for that client. ie: the basics on taxes when looking at an investment, even if you ask them about the buying and investment with borrowed money and is that interest amount tax deducible. most times you’ll get a “no” mean while the answer is “yes”.

  105. Do you have to open an account for the accumulated room to add up, or does everyone accumulate contribution room starting from 2009 if they are 18 or older even if they have never opened an account?

  106. John its the latter.

  107. if the main advantage of rrsp vs tfsa is the individual marginal tax rate at time of withdrawal, wouldn’t you want the rrsp for years when your tax rate is low (i.e. at retirement or loss of employment) and the tfsa for use when your marginal tax rate is higher or increasing (i.e to buy your car or whatever) while you are still working?

  108. Canadian Capitalist

    rdavies: Yes, since withdrawals from a RRSP are taxed, it is best for retirement years. TFSAs are better for pretty much everything else. Note that withdrawal from a TFSA creates an equal amount of contribution room; withdrawal from a RRSP doesn’t.

    John: Just like a RRSP, a TFSA contribution room accumulates regardless of whether an individual has an account or not.

  109. Pingback: Ideas for your Tax-Free Savings Account (TFSA)

  110. The tax free savings account real advantages don’t amount to a hill of beans.
    Because the $5,000 contributions are made with tax paid dollars unlike RRSP contributions, the only advantage is that the income on the 5,000 is sheltered.
    If we are lucky the GIC rate on the 5,000 would be a whopping 3% or only $150 would be tax sheltered.

    I am sure most investors will be very reluctant to invest the 5,000 in the equity markets after seeing there equity investments tumble 30% or more.

    More meaningfull would be for the Government to revise the minimum RRIF withdrawals to help the many who have seen there RRSP nest eggs tumble in value. But I suppose the government will at best. hold onto the strings of the RRSP/RRIF accounts and at best defer the amonts to be reported.

  111. Yes Norman, GICs are the ONLY use for the TFSA . . . ever think of putting all your foreign dividends in there and keeping your eligible Canadian dividends outside?

    Also, have you compared that 3% CIG if you are putting in 5K a year for 20 years tax free vs taxable each year. Sure it doesn’t sound like much this year, but it ads up extremely quickly.

  112. Canadian Capitalist

    Norman: Like Traciatim points out, the TFSA is an excellent savings vehicle. Just in the first year, a couple contributing $10,000 to their respective TFSAs will save $200, assuming they earn 4% and are taxed at a 50% rate. It adds up in subsequent years and in a few short years are looking at significant tax savings.

  113. I have a question. Everything I read says that if you make a withdrawal from your TFSA, you can replace that amount “at a later date.” Does it matter when this later date is? One “financial advisor” at my bank today told me that if you invest $5000 on Jan 1 and then withdraw some during the current year, whatever you withdraw cannot be replaced until the next year when it is added to your contribution room. That seems ridiculous to me…anyone know if that’s true?

    For instance, if I put $5000 into a TFSA at bank A on Jan 1, then withdraw $2000 on Jan 2 and put it into bank B….am I over-contributing? Is this allowed?


  114. Plandry, since the CRA is overseeing the contribution limits for your account and not your bank. The calculation would be correct. However you would be able to contribute any time after the withdrawal date. Just think of it as the same as an RRSP, where your contribution limits are only done on a yearly bases..

  115. I’m still confused about this…here is a direct quote from ING’s website:

    “If you take money out of your Tax-Free Savings Account, you don’t lose the contribution room. You get it back in the following year.”

    This makes it sound like any withdrawal’s you make cannot be replaced until the following year.

  116. Canadian Capitalist

    plandry: The financial advisor is right. When you withdraw money from a TFSA, that amount is added to the contribution room for the *next year*.

    So, your example wouldn’t work. If you contribute $5,000 to your account on Jan 1, withdraw $2,000 on Jan 2, then you *cannot* contribute anymore to any of your TFSA accounts in that calendar year. If you do, you’ll deemed to have made an overcontribution, which attracts a penalty.

  117. Canadian Capitalist, I would disagree with you on that last point as I understand it.

  118. Canadian Capitalist

    walter: Here is a quote from the CRA webpage:

    “The TFSA dollar limit is $5,000 in 2009, and will be indexed to inflation and rounded to the nearest $500 in later years. Unused TFSA contribution room can be carried forward to later years. The total of TFSA withdrawals in a calendar year is added to the TFSA contribution room for the next calendar year.”

    Link to CRA webpage

  119. I’m looking for some information about the interest payment that walter is talking about in msg# 98. that and any resourses about the differences between a limited company, incorporated and such as i am looking to start my own company. and since this is a forum on TFSA’s i am curious about whether or not mutual funds are a good idea for this type of account since i only have mutuals in RRSP’s….


  120. Brad,
    re: mutuals in this account is your choice.. just note that a mutual fund is a product and it does carry a yearly % charge.
    Plus, I hate mutuals as 85% of all mutuals don’t beat the index. I never could see the benefit of paying them 2.5% for non performance.

    re: the difference between a limited and an incorpated company you can just google that to find what is the best for you business.

    re: interest payments vs dividend, well brad before you start your business you’ll really need to educate yourself well before you get started.

    But, an interest payment from a company is dollar for dollar deducted from the company’s income statement (without tax payable) and is shown as an expense to the business vs a dividend can only be paid out with after tax money..

  121. I’d like to know if there are any advantages/ disadvantages of opening a TFSA through a Bank or some other institution, like a Trust?

  122. Vinny, there is little to no differents..

  123. Thanks walter; Apart from using the money to invest freely in the stock market, I guess by opening a TFSA account with TD or CIBC or BMO will only allow me to invest in products they offer. So I guess I really need to shop around for good low risk high return invests deals from financial institutions before putting $5K into an account.

  124. Vinny,
    low risk, high return.. not as a product with all their fees. Just look at buying the banks. or the ETF of the banking stocks. There is so many different ways to invest monies nowadays. Even if this cash isn’t needed for a long time you could even pickup so government bonds..

  125. Jo,
    what does that web site have to do with the TFSA???
    I’ve looked through it and it talks about learning english, selling cookies and etc. give me a break Jo stop trying to cross advertise another useless web site..

  126. If you have $5000 that you consider disposable and you are not adverse to risk…would buying a highly speculative stock (or one which has been beaten down badly) not be worth the chance. There certainly are a many of the latter currently available. For this type of investor, these TFSA’s have become available at JUST the right time. The poor markets may end up being fantastic gifts for those doing there DD and taking a calculated risk.
    I’m thinking of using my portion in the above manner and the wife’s in a very conservative manner. In the future I see us withdrawing from her gains to do some speculating in my account. Is anyone else in this situation or considering such an idea?
    Our TFSA’s are setu up and ready…now the hard part: How to best use them?
    Good luck

  127. Thanks for all the posts – they have been very useful. The thing that caught my attention was the fees that were posted for CIBC. I deal with BMO and looked in vain on their website to get some information on the fees associates with the TFSA. I decided to send them a message and I’ve provided my comment and their response below.

    ” Comment:Hi, I was thinking of opening a tax-free savings account and can’t seem to find any information on the fees associated with the account. Can you please direct me to the place on your website that shows what fees would be associated with the tax free savings account. Thanks,

    Response: Thank you for contacting BMO Bank of Montreal, and I appreciate this opportunity to respond.
    I understand your concern regarding fees. I can confirm that there are no fees associated with the Tax Free Savings Account (TFSA). Please note that the investment products you choose to hold in the TFSA may have fees or charges associated with them (for example, management fees on a mutual fund).

    Based on this message, I opened an account with them.

  128. Hi folks, great insight here….I have had my research assistant spend several days contacting all the banks and other institutions by phone and website to find out what fees they will charge, and what incentives are being offered. A lot of them are still figuring this out and have not fully developed a plan (!?)… anyway we will feature this on the website (under “Where…”) once the stats are coded…and it will be updated as new info comes in.

  129. Just to follow up on the previous post..the table will be up in a day or two showing what the banks fees and incentives are, and we will update accordingly – Diana

  130. Okay, here’s a question. I contribute to a company stock plan. Can I transfer the stock directly in to a TFSA, or do I have to sell it, trigger the capital gain/loss, and then invest in the account?

  131. This is just a pathetic move to look like they are doing something. WOW, 3% of 5,000….wow just such great gains.

    It’s bloody savings account….and you save 100 a year. That is of course assuming you’ll never need to touch it.

    And then, it may work if you don’t touch it for let’s say 10-30 years? And what average family will never have an emergency in that time?

    This is like some old lady getting a face lift, too little too late. And done the great canadian way…CHEAPLY.

  132. Robert, of course if you just open a savings account with it and put 5 grand in there, then never do anything else with it again you would save a few bucks a year.

    Of course you leave out that the growth of the account is yearly, so next year you put another 5 grand in. Year 3 you have an emergency that wipes the account clean so you are at 0, but your contribution room is now the 3 years of 5K (15K) plus the interest you earned, so you can feel free to contribute as much as you like in year 4 again since you haev a shade over 20K of room.

    Think about someone turning 18 now when they are 30 and starting their family and have 60,000 of room available, you think it’s trivial then?

    It completely rounds out the taxable short term accounts, with a non taxable savings and a non taxable retirement account which makes an incredibly powerful combination for future planning.

  133. Currently only BC, AB and PE allow successor designations for TFSAs. Since we live in Ontario, we can’t designate a successor. Anyone heard if Ontario and the other provinces will be introducing legislation to allow this?

  134. Cajon – If you mean naming a spouse or common-law partner as a beneficiary upon death then the answer is yes you can and the proceeds are tax free.

    See the FAQ section under:

    If you mean naming a spouse or commom-law partner as a successor who can continue to contribute to your TFSA account upon death then I would suggest calling the government to obtain a concrete answer. In that case your spouse or common law partner would have his/her own TFSA potentially and the money inherited from your TFSA could be contributed to his/her own account depending on contribution room at that point in time.

    Although a bit obvious, hope it helps anyways.

  135. DB,

    Although the federal legislation for TFSAs provides for designating a spouse as a successor, currently in the province of Ontario, this is not allowed. Only BC, AB and PE allow this. The list of provinces that allow the successor designation is shown on the HSBC website at:

    Here is the response that I received from the office of my MPP concerning this matter:

    Thank you for your email regarding designating a beneficiary and/or
    successor for the new Tax Free Savings Account. Presently, one cannot
    designate beneficiaries for Tax Free Savings Accounts. Accordingly,
    there is no place on a form to do so. Whether to allow such a
    designation is a policy decision that the government is presently
    considering. I trust this information is satisfactory to you.


    Office of Leeanna Pendergast, MPP

    The current situation is totally unacceptable to me. Why should the residents of BC, AB and PE be allowed to designate a successor beneficiary as provided for in the legislation and the residents of the other provinces be denied this designation?

  136. Im finally back from a long vaction into southern europe
    and loved it..anyways..
    Robert, if your looking for interest on an investment look at the corporate bonds as they have been beaten down allot and now have a great yield.. if you dont like corporate bonds look into ppn as these do have a very high percentage return

  137. Cajon,

    Interesting and thanks for the followup. I would imagine that legislation to do so would be in the works for the rest of the provinces, not sure why the delay.

    As you mentioned, and I double checked, the federal govmt website allows for designation and succession see:

    A lot of the plans details are still being ironed out by both the govmt and issuing institutions so don’t lose hope.

  138. Hi,

    I’m lacking some understanding regarding the Tax Free Savings Account. And hoping for some clarification.

    From what I’ve been informed and read, Stocks can be held under the Tax Free Savings account.

    Having said that can stocks held outside of the Tax free savings account be transferred into the account ?

    And also when I was talking to a Bank representative, she informed me that if my investment in stocks under the TFSA grow from 5000 to 8000 and I sold the stocks to withdraw 8000, I should be able to recontribute 8000 (which seems rather fishy to me). And so I was wondering if this statement holds true ?


    • Canadian Capitalist

      @JeffyStud: Yes, you can hold stocks in a TFSA. You should be able to transfer stocks in-kind to a TFSA but watch out for tax implications (you have to declare any capital gains but cannot claim capital losses). And the bank rep is right. You can withdraw any amount from a TFSA and that amount will be added to your contribution room in the next year.

  139. This $5k per year contribution room. I assume that it goes up whether or not I have opened such an account – eg I don’t open an account now, but in ten years time I can open an account and deposit $50k??? Is that right? How is this kept track of?
    Also – I assume you have to be 18+ before getting such a benefit (eg my 5 y.o son won’t suddenly have $65k headroom when he turns 18)!

  140. MarkI, you are correct. The CRA is tracking contribution room much like they track RRSP contribution room. Financial institutions will report deposits and withdrawals to the CRA.

  141. Hi guys, I have questionsregarding opening multiple TFSA accounts. Suppose I open a TFSA with a bank A today and put $5k in it.

    1. It looks like if at some point bank A drops drastically the rate, am I stuck with it? It seems that I cannot move my money to another TFSA in a bank B without penalty since I have used my contribution room for 2009? Am I correct? If so, that’s sooooo lame.

    2. If, on Dec 31st 2009, I forget to move my $5k to bank B, does it mean that I am stuck with bank A for 2010? Technically, if on Jan 1st 2009 I have $5k in my TFSA account in bank A and move them to bank B (along with putting another $5k for 2010), I would be $5k over my contribution limit (I had $5k in bank A, then $10k in bank B, so I am $5k over the limit). Is that correct?


    • Canadian Capitalist


      1. Yes, you’ll have to transfer the account. You can’t make another contribution with Bank B for $5,000.
      2. If you transfer a TFSA out of Bank A into Bank B that won’t count as a contribution. You are simply moving your account. So, your contribution for 2010 is the $5,000 money you put into the account in Bank B. The money transferred in from Bank A doesn’t count as a contribution.

  142. Thanks Canadian Capitalist,

    The portion I was missing that one is able to transfer a TFSA account. I guess you have to place a request with bank B that will take care of the transer?


  143. can i declare my tax free savings account?
    and save from my income tax?

  144. I’ve been reading a lot of articles and blogs about the the TFSA. Almost every article I’ve read implies using the TFSA for holding cash investments and GIC’s getting marginal at best returns. I would think the only real advantage in this account doesn’t come into affect until a large balance is attained, so wouldn’t it be advantageous to use it primarily as a vehicle to hold your moderate to high risk investments, maximizing your returns and tax savings?

    I have yet to hear of anyone suggest this and I want to know if I’m off my rocker.


    • Canadian Capitalist

      ERTW: To the extent that most people hold some cash as emergency savings, a TFSA is a good place to hold this because of flexible withdrawal rules. Since the initial contribution room is just $5,000, it makes sense to keep highly-taxed cash instruments within the TFSA and hold higher risk instruments in a taxable account. In future years, when the contribution room grows due to annual $5K (or thereabout) increments, it makes sense to hold riskier assets in it.

  145. ERTW, the reason most places recommend the TFSA for investments that earn interest is that capital gains and eligible dividends are already taxed less than income/interest outside the registered accounts.

    Though you are correct that they can be used to store all sorts of investments and the advice given in advertising is kind of a ‘rule of thumb’ that will fit most people’s situations rather than showing how powerful the accounts can be and how flexible they really are.

  146. ERTW,

    Its your money you can do what you will with it. I for one have bought stock with my TSFA’s cash. I’m also looking at the cororate bond side of things as well, however just like you have said higher risk investments do warrent more caution in the market at this time. no risk equals no reward. now watch as inflation picks up and everything (other then metals) will lose value.

  147. Walter, I also hold stocks in my TFSA. Due to the volatility of the market I have managed to increase my initial $5k contribution by 30% just within a month and a half. From reading numerous articles, some suggest not investing stocks within the TFSA due to the inability to claim capital loss but with the markets so low, isn’t it more likely there would be a higher chance of capital gain instead of capital loss? With the market the way it is, I’d rather invest in stocks than some low-paying GIC’s… does this not make sense?

  148. blai,

    If it makes sense to you then yes. Keeping in mind that everyone should know were there comfort level is and for some its in GIC’s. The reason why everyone talks about placing “interest earning” items into a TFSA is because of the way its taxed. On the flip side don’t believe that bonds don’t/can’t fall in price, looking at what has happened in the bond market over the past year people who had corporate bonds last year are in the red by allot more then the stock avg. (depending on the bond issue)

  149. I hear you can hold U.S. investments in the TFSA, but upon withdrawl you will recieve Cdn. dollars, which exposes you to dollar fluctuations and bank exchange fees. True?

  150. Frank,
    yes on both accounts. The TFSA is really no different then an RRSP in regards to the currency.

  151. Hey everyone, thank you for your input, I’m finding it very helpful. I am gathering as much information as possible on the TFSA.
    I do have one question (I didn’t see it in the previous thread, however I may have missed it) and that is, does anyone know or have a list of the institutions which allow you to purchase stocks directly from your TFSA account? Or is there only the option to hold them?
    I would like to open one but for obvious reasons would like to ensure that the location I open at offers the most versatility.

    Thank you for your time.

    • Canadian Capitalist

      Devon: You can do that by opening a TFSA account at a discount broker. Watch out for fees — admin fees and withdrawal fees. You can then buy stocks directly from a TFSA account.

  152. Yes, you can open them to take stocks directly.

  153. Pingback: Withholding Tax on US Stocks Held in a Tax-Free Savings Account | Canadian Capitalist

  154. The Gibbons Family

    As a 5 year old child, I had a savings account opened for me and learned the value of saving.
    You would think our “leaders” would like today’s children to learn a value or two (not meaning to offend anyone).
    Our 8 year old and 6 year old have started earning their money by getting a paper route. We wanted to open a savings account for them. What a hassle this has been!!!

    First we were told they needed official birth certificates. Returning to the bank, now we’re told we need Social Insurance Numbers for these two little children.
    Who are these people we keep electing? They don’t seem to be very smart or family-minded,

    We can’t have a TFSA. Those are only for persons over 17.
    Hmm, I see. Children over 17 don’t pay tax. Children under 18 can’t have a TFSA and could pay tax. Say again?

    Our children can have a non-interest bearing chequing account (totally useless if you’re trying to teach your children something – sorry again if we’re offending some of you), but they cannot have a non-taxable interest bearing savings account like everyone else over 17.
    Children under 18 can only have a ‘taxable’ savings account IF they produce a Social Insurance Number and an official Birth Certificate proving they are who they say they are.
    We shouldn’t have to apply for a SIN to open a child’s savings account to put money in from their paper route.

    Mr. Prime Minister, are you listening? Does this all make sense to you?

  155. @ The Gibbons Family:

    Firstly, you may wish to check around at various financial institutions; not all require a SIN. Most Credit Unions have young savers accounts, as do other banks. Some will require a co-applicant, others may not.

    Secondly, there are many things your underage children are prohibited from: contributing to RRSPs, voting, joining the military, purchasing tobacco & alcohol, working beyond a certain number of hours in a week, and many more similar prohibitions. That’s life in the western world. Your children will pay no income taxes on less than $8,500 per year. If they can earn $170 per week from a paper route, or after school job, then I’m impressed! So, in all likelihood your children can indeed have a tax-free savings account simply because they will earn insufficient reported income to pay taxes. In addition, since the taxes on the income earned from the bank account would be so small, even if your kids did earn enough to be taxed, really aren’t worth worrying about. $5000 at 1% interest is $50 taxed at 2 to 5% is a buck to $2.50 in taxes paid. If your kids are earning that sort of coin, then one of the lessons they should be taught is the benefits they receive for the taxes they pay.

    My $0.02


  156. Gibbons, You may want to check out ING Direct. They’ve recently launched savings accounts for children that are linked to your own account, but have their own login and can be managed by the child but controlled by the original account holder.

    You also need to verify a piece of ID for you child here, I think just by typing in the ID’s identifying number.

  157. Re: Gibbsons,

    Give me a break you have had 8 and 6 years to get the paperwork for your children and now your labeling the banks and the government as anti children. What your teaching your kids is that beening lazy and not knowing the rules (laws) and there for its someone else’s fault.

  158. Canadian Capitalist

    @The Gibbons Family: I don’t see making a few extra trips to the local bank as a huge hassle. You need to get birth certificates and SIN number for your kids anyway eventually, so you might as well get it now. Or you could have simply called your local branch, inquired about the documents you need and avoid the extra trips in the first place.

    Also, getting a birth certificate and SIN card is a piece of cake. You can apply for a birth certificate online and have it delivered in a few days. You can apply for a SIN by mail. I mean, really how onerous is this process?

    DAvid has already pointed out that it would be a rare young child who pays taxes. It is a moot point whether savings accounts for kids should be taxable or not.

    As an aside, if your younger child doesn’t have a birth certificate or SIN card, how are you getting the Universal Child Care Benefit?

  159. The Gibbons Family

    Wow, it’s amazing that I’m still amazed everytime I see how much Canada has changed since the freaks took over in the 1960’s. I’d think I wouldn’t be surprised anymore.
    It appears a “capitalist” in Canada sounds completely unlike how a “capitalist” in America sounds. In Canada, a “capitalist” sounds just like another left-wing loon, who would rush out and worship a Liberal statue if there was one nearby.
    Valter, for people without a car, we aren’t lazy to travel miles to and from our bank to try and get this once-simple task accomplished. It’s more lazy to make comments without knowing people’s situation.
    Not everyone stands at Safeway telling their wife what kinds of breads they have and asking her what kind she wants – while ignoring their child tugging for attention.
    We haven’t had 8 and 6 years to get the paperwork Valter, because we haven’t needed to Valter.
    Canadian Capitalist – it’s a huge hassle to travel to and from the bank without a car (oh I just assumed everyone has a car), and get different information from the worker who’s too busy with her blackberry and knows more about MuchMusic than she does about her job.
    Calling the branch is a bit different when it’s a grocery store with a pavilion, not actually a bank branch (ie. Real Canadian Superstore)- (oh, I assumed it was a regular branch like everyone goes to).
    CC, “simply” calling them to find out what documents were needed wouldn’t have been better than physically going there. It was by talking face-to-face with a worker that we were misinformed that all we needed for each child was a birth certificate. (But she does know alot about Facebook, I’m sure.)

    While David is probably correct, that it would be a rare child who would pay taxes, that wasn’t the point. The point is that at one time it would have been thought absurd by everyone but a handful of nuts, to expect a child to get a SIN to open a savings account. And it would have been thought absurd to guarantee persons over 17 tax free accounts, but not children under 18.
    The point is David, Valter and CC, that (it appears from this site) a “capitalist” in any country other than Canada would shake his head at the nonsense of requiring a child to have SIN to open a savings account. (Yeah the baby-boomer freaks did a great job in their worship to Trudeau and company – two generations brainwashed).
    In a few short decades, thanks to the freaks, we’ve become so different from America, that even our so-called “capitalists’ smell like liberals.

    And as an aside CC, we have three children 8, 6 and 2. Only the 8 year old presently has a birth certificate (because he was born in 2000 which was the first year of the new millennium – ha ha ha – and millions of dollars of our taxes were spent at the end of 1999 for you to celebrate it – ha ha ha – even though some of us lazy people thought the century ended in 2000).
    All the children receive the Universal Child Care Benefit, although we only possess one birth certificate. Wow, wonder how that happened.

    Canada has changed so much since the freaks came to power, that while once we were very similar to America, now most Canadians are quite different. Inculcated.
    Although a Canadian, I think it’s ridiculous for children to have to possess a SIN to open a savings account. And it’s ridiculous to disallow children from having a TFSA but grant them to adults.
    More importantly, it’s shocking that there are grownups today in Canada (and more appalling calling themselves “capitalists”), who think it’s okay that this is the law in Canada (and you should know the law in Canada).
    It would be difficult to find a single “capitalist” in America, who would agree. Everyone of them would shake their heads, but give a knowing grin when learning it was happening in Canada. (but you wouldn’t know that if all you watch is CBC and MSNBC).

    We were misled by the title of this site. But we did learn something. We learned that in Canada, if a site sounds conservative, free-enterprise, or traditionalist (keep the money in the pockets of those who earned it), it doesn’t mean it is.
    Although we already knew, we know even better the extent of the liberal brainwashing in Canada from 1968 to today, by the tone and the comments you made.
    If this had really been a conservative, capitalist site in America, you have told us the name of the offices to complain to and you would have been flabbergasted if not outraged. You see in America, they had Reagan and a lid on their radical feminists. Today we’re so well-taught, we wouldn’t think to fight the culture war that is being fought in awakened America. (you can thank your teachers and your Mommy).

    When we found this site we immediately bookmarked it in our Conservative Capitalist folder, thinking it would probably prove quite useful. Funny now isn’t it.
    Wake up Canada. Get that CBC liberal television network beam out of your head and get deprogrammed from everything you ever learned at your socialist schools.
    Freedom is not an ugly American word.

  160. Holy crap Gibbons, I think you need to check in to anger management, you’re going to blow a gasket.

    P.S. I don’t watch TV, and I don’t have a car… both my kids had SINs a few weeks after they were born. Why are you so lazy and blame everyone else? American perhaps, or just follow their lead?

  161. Canadian Capitalist

    That was a very good rant Gibbons but you are barking up the wrong tree here. DAvid has mentioned in his comment that not every bank requires a SIN number. In other words, it is not the law here; merely a requirement by a particular bank. You don’t like it and want the Government to fix it for you and then you call everyone else a Liberal nutcase. That’s pretty thick.

  162. Gibbon,
    Canada has been different from the United States since well before Trudeaumania, and well before there was any Liberal presence in the country. In the late 1700’s there was a significant event in Canada’s history known as the United Empire Loyalist emmigration, and it has been pretty clear since that time that the two are very different.

    As for politics, a Liberal in the US is more conservative than Stephen Harper in his happiest dreams. Since you seem to favour the American ideals so much, why not move there?


  163. Just another thought, if you feel that it is unfair for children to be unable to have a TFSA, possibly you’d like to send me your Universal Child Care Benefit? I’ve never had the ability to claim that deduction.


  164. Gibbons, holy poop I can’t believe how jaded and narrow minded you are. You whine about the far distance it is to a bank because you don’t have a car. Bo who. Phoning the bank was also not good enough for you. And the whine continues, well it seams that you have internet why didn’t you look it up and see what is required and stop placing this on politics, the rules are there for a reason… This site is for the discussion of investment and the types of investment vehicles that are used in Canada NOT for you whining about a political party. I would suggest that the next time you praise the NDP just remember that if they were is the top seat you wouldn’t have any money at all.

  165. I believe investments in TFSAs should have high income and be tax inefficient since the income and gains will be tax free. Income Trusts in my oppinion are the best for the TFSA.

  166. Here is the article about the investment that should be in your TFSA and why.

  167. Smac20, I disagree with holding Income Trusts inside a TFSA. Please note that income trusts in CDN must convert to a regular company structure and therefore the dividend tax credits apply.

  168. Pingback: Choosing a TFSA Savings Account | Canadian Capitalist

  169. Is this some kind of distraction trick or something? If your lucky you will earn 1%, or $50 dollars (for 1 year). Of that you would have only paid (let’s assume) 40% tax, or $20 dollars. Big f’ing deal. Wake up people, you are being robbed. The government showers money on banks and shuns the employment insurance program, and that is just one of the million ways you are being screwed. You should take your money out of the bank. Look for “Money As Debt” on

  170. Gerry, I think your confused.. first off there is no tax payable on the $50 that was derived from inside your TFSA. second, the CND Governmennt has NOT shower cnd banks with cash and EI has always been a hidden tax to employees.

  171. Pingback: Savings Products from Canadian Direct, Peoples Trust and Ally | Canadian Capitalist

  172. I agree with an earlier poster that the banks initially did not have much information available about tfsa, and staff was not prepared to deal with customers who wanted to find out. I initially opened an account with RBC, as did my husband, then I withdrew my $5000 and deposited it into an account with RBC investing, so I may be penalized by Revenue Canada for this. My bank did do a transfer notification so they may have prevented part of the penalty, but whatever it is, it is.

    My husband did the same thing, EXCEPT he transferred his account from RBC to RBI so he should have no problem. And, since his investments made a substantial gain, he will realize appreciable tax savings in the initial year.

    Mine unfortunately did not gain, so I would have been better off to leave that particular investment outside the TFSA, as I would have been able to claim the Capital Loss.
    It has been a learning year, and fortunately the losses were limited by the low contribution limit. I do believe it is preferable to have holdings in a TFSA than any regular savings vehicle, every little bit of growth helps, and even if it’s only a $50 savings in taxes per year, compounding will add up to a nice tidy sum over time. Why not take advantage of a little break?

    My son put only $1000 in his TFSA, and was lucky or smart enough to turn it into a $2069 balance with a couple of good stock buys over the year. So his rate of return of over 100% can not be disputed in any way! Had he done this outside the TFSA he would have lost the tax on the $1069 gain. A nice start on saving for retirement for a young man.

    My vote goes to putting the allowed amount in your TFSA, so it is available should you need emergency money, then investing as much as you can into your mortgage to save interest on your loan, but with mortgage rates so low, making sure to check out your RRSP options, as there could be better gains by making an RRSP contribution, then using the tax refund to pay down the mortgage. I’m no financial expert, but this doesn’t seem like rocket science, just a bit of common sense.

  173. Pingback: To Be Or Not To Be…A Father – Six Things to Consider When Starting a Family « Dad In Training

  174. Regarding transfers to a TFSA – you have to realize the FMV at the time of transfer.

    So, you buy GOOG for $400 in your non-registered account, now it’s at $600 and you would like to cash out without paying capital gains.

    The answer is easy right?- Transfer the equities to your TFSA first, then cash out.

    Unfortunately it wont work that way – as soon as you transfer you have to realize a disposition of sale (even though you have not sold yet).

    On top of that – if the disposition was a loss – you forfeit your capital losses deductions.

    Excerpt from tfsa website:

    “You can also make “in kind” contributions to your TFSA, as long as the property is a qualified investment. We will consider that you have disposed of the property for its fair market value (FMV) at the time of the contribution. If the FMV is more than the cost of the property, you will have to report the capital gain in your income tax return. However, if the cost is more than the FMV, the resulting capital loss cannot be claimed. The amount of the contribution will be equal to the FMV of the property.”

  175. re: Flood, did you just wake up or crawl out from your hiding place?
    Your comment had no value, as its quite known that a TFSA and an RRSP have the same rules. That rules regarding FMV is all over the place and not specific to TFSA’s either.
    Flood spend more time doing your research on account management and taxation before you start posting comments like this.

  176. You’re kidding right, everyone is saying how great these TFSAs are and yet the banks i.e. CIBC is giving a paltry %1 a year, that means that even if I invested the max, I am going to get around $50 for the year? where is the logic in that? if the interest rate was a good one, considering the banks etc are probably using your money to invest as well, then it may be worthwhile, even if I leave it in for 10 years, the interest wouldn’t even cover the cost of inflation. Plus the fact you have already paid tax on the money. All a TFSA means is that it is a secure place to put your money instead of under your mattress, but I would rather have it under my mattress, at least I don’t have to go through all the time and effort to take it out when I need it. No, unless the interest rates become better, I will keep my money under the mattress, thanks but no thanks.

  177. You may want to check this site out as well

    Of interest is the “withdrawal fees” some are charging, something to think about when the fess are more than the interest you will earn, there should be no fees associated with this type of account, the banks get richer on the backs of the citizens.

  178. Mike, You can hold any RRSP eligible investment inside a TFSA, you don’t have to limit it to a bank savings account.

    [Edited for spelling]

  179. WOw, I wish i could edit comments… Should be You, and hold obviously.

  180. “CIBC is giving a paltry 1%…. unless the interest rates become better, I will keep my money under the mattress”

    Why? What interest rate is your mattress paying?

  181. I use my TFSA for riskier investments. My contribution room for 2010 was over 20K. It can be worthwhile…

    Don’t look only at savings accounts. And don’t ever consider savings accounts with big banks like CIBC.

  182. Canadian Capitalist

    @Mike: A TFSA is like a RRSP — it’s just an account and you can use it to hold almost any security. Stocks, bonds, GICs, Income trusts, you name it. It doesn’t have to be just a savings account though online banks such as Ally pay 2%. Assume you have $10,000 in an Ally savings account. You are sheltering $200 in interest from tax, which works out to a tax saving of $60 to $80 depending on your tax bracket. If you invest in GICs, you’ll earn more interest and hence save more on tax. Of course, if you so wish, you could take more risk, invest in stocks and shelter more of your returns from taxes.

    With respect to withdrawal fees, many online banks such as ING Direct and Ally offer accounts with no fees of any kind. The banks can choose to levy fees on TFSA transactions. We can choose to avoid them for online banks that don’t charge fees. It’s a free country after all.

  183. Pingback: Ally: A Good Choice For Savings Accounts | Canadian Capitalist

  184. Pingback: Ally: A Good Choice For Savings Accounts | MoneySense

  185. When I opened the TFSA the bank (CIBC) agent did not explain it correctly.
    I just received a ‘statement’ for taxes owed.
    I am being penalized 1% for over contributed my AFTER TAX DOLLARS. The $5000 is the max contribution per year. So I put that in in January. Then I had to use the funds for an emergency in May when I was laid off. In August after I started working again, I put 2000 back and then added another 1000 in Sept, and October, and November to bring the amount back to $5000. I never “over contributed” in my mind and based on the bank’s explaination of the maximum contribution per year.

    What I didn’t know was that $5000 max per year and does not include any withdrawls in that year. In other words, it is not ‘net’ contributions per year. It is the sum of ALL contributions. Withdrawls can only be carried forward to NEXT YEAR. This is a STUPID concept.

    As it stands I have to pay over $100 penalty because I am trying to “save”. On my $5000 I earned $30 before the withdrawls. Now with the penalty my net TFSA loss is over $70 this year.

    I blame CIBC and all other Financial institutions that happily let you contribute more than the maximum per year. They setup the account like a regular savings account and promote it as such.

    In my opinion, the TFSA has been poorly communicated and in general is a bad idea for those in the middle class who want to try and save with after tax dollars. Why invest at 1% or 2 %?
    It has been poorly promoted, and incorrectly explained.

    I think many many hard working Canadians are going to get burned by the over contributions rule, because it has not been explained by their financial institutions.

    At this point I am closing my TFSA and putting the money in RESP for the kids, and on the Mortgage.


  186. “I blame myself for stupidly contributing more than the maximum per year and not bothing to go out of my way to read how the accounts work before listening to a salesperson”.

    There, fixed that for you.

    It was promoted by the government as an account to place all investments that are RRSP eligible. It was advertised by banks as savings accounts because that’s what products they had at the time at that branch. I’m sure you went online and noticed that you can open a self-directed investors edge account as a TFSA through CIBC as well . . . of course you did. You probably even watched the TFSA intro video on the CIBC web site that declares that withdrawals don’t effect your contribution room and you can re-contribute in a future year . . . of course you did. Why would you give someone 5 grand on a sales pitch without looking up how it works?

  187. Roscoe, My, My, My, another canuck (lemming) that cant read. Gee.. Roscoe I hope that your kids are smarter then you as it seems that your not very quick. But you sure like to blame everyone else but yourself, shame on you as your teaching your kids all the wrong behaviours in life.

  188. Now Walter, that response you gave shows you ignorance, why is it that you and others have to be so damn insulting. Just another reason I often don’t bother posting. Not everyone is as savvy as you apparently are.

  189. Canadian Capitalist

    @Roscoe: If indeed CIBC gave you false information, may I suggest you talk to them and find out if there is anything they could do to make up for their mistake. If you have records of who you talked to and when, it may help. I’ve always been successful getting banks or financial institutions to make good mistakes made by them.

    May I also suggest you not judge TFSAs harshly based on your initial bad experience. In another 3 years, TFSAs will be 5 years old. At that point, every adult Canadian would have contributed or have contribution room of $25K. Assuming savings accounts pay 3% then, you’ll be earning $750K tax free. You can also shelter all sorts of income — dividend, bond interest etc.

    But why stop there? In 10 years, you’ll have $50K in contribution room. Between you and your spouse, you’ll have $100K in a TFSA. Even if you earn just 2%, you can make $2,000 per year tax-free. TFSAs are truly a godsend for savers. I hope you agree that TFSAs can provide tremendous value for savers.

    Everyone who had the max $5000 in a TFSA in 2009 and moved it to get a better return or took some cash out then replaced it is getting penalized for “over contributing” 1% per month! What a scam. I moved $5000 in July to get a little more interest so just got a bill for $300. I only made $100 interest all year. All I heard was how great TFSA’s are and that you can invest in almost anything but not once was I warned moving money and carefully watching the limits is “over contributing”. This year I added $5000 to my savings account but then moved it to an online brokerage, bought some stocks which are now worth $9400. So now that the CRA finally told me their bogus rules a year and a half after I started using TFSA’s I can’t even withdraw my $10,000 “over contribution” and my wife has accrued $300 worth of penalty for 2010. This is the biggest scam I’ve ever seen.

  191. That is what I stated before, these accounts benefit only one thing, and that is the institution you are banking your money with. A lot of these will charge you a penalty if you withdraw which is total BS, but then of course we have banks etc charging you a fee if you go over a certain amount of withdrawals on ordinary accounts as well. The banks and savings companies should be regulated, we are being nickel and dimed to death by companies that are raking in billions of profits a year. The TFSA at a max %2 interest is a farce, and don’t forger to read the fine print, rates subject to change anytime they want to, and you can count on the rate not changing for the better, mine started out at a %3.5, after two months it was .5%, so I withdrew the whole amount, and put it into something more useful. If this $5000 was a taxable deduction it may be worthwhile, but all you are doing is putting money away that you have already paid tax on, bottom line though with any company, is read the fine print as far as withdrawal penalties go.

  192. The CRA is gaining the most, my wife and I will have around $1000 in penalties between 2009 and 2010 if I pull everything out now. We never once went over our limits. I’ve filled an RC4288 with my tax centre also emailled my MP, the minister of taxation and the finance minister to try to get these penalties reversed.

  193. Kurt did you move it or did you transfer it? The whole trick to this TFSA thing is just the same as an RSP account. People need to be very careful on how they switch thier accounts around.

  194. I moved it. From PCFinancial to ING last year. From ING to iTrade this year. I read warnings about over contributing so carefully stayed at $5000 last year (didn’t even move the interest, just left it behind) and stayed at $10,000 this year as I bought a couple of stocks.

  195. and that is way you have gotten stung, as “you moved” it “not transferred” it. You should read up on the RRSP rules as they are the rules that govern the TFSA.

  196. 55,000 innocent canadians were sent bills last week according to an ATIP request, often for 10 times the interest they earned. With an RRSP you pay tax on the money you withdraw at your marginal tax rate (or your spouses rate if you bought spousal and didn’t buy again for three years) and can deduct recontributions, I would be happy to pay tax on the $100 I earned last year, not the $1000 in penalties I’m facing.

  197. Kurt your comparing apples to oranges. If you’d check the penalty for over contributing to an RRSP is the same, at 1% per month. So don’t start by comparing a withdrawal vs a penalty. However I do hear you as this “TFSA” was slapped together very quickly and has so many issue’s wrong with it that it’ll take years or a lawsuite to sort it out. Having said that, it is very important to read the rules for the RRSP vs the TFSA because they are using the rules that have been worked out and sorted through for years. The beef I have with the TFSA is that it is to restrictive on the investment choices and that its to small of an amount that can work better for allot of people. After all the finance department is looking towards how to suck more monies into CPP so that they can lose 40% at a time.

  198. Canadian Capitalist

    I wrote about this today here:

    I disagree that the Government should waive penalties for everyone caught in the excess TFSA amount rules.

  199. There is an article about TFSA Institution Transfer Strategies at

    There’s also an article about TFSA Over-Contribution Penalty – How To Fix It at

  200. @Walter: Your comments were not constructive nor helpful. Yes, I can read. Your attempt at trashing my post only indicates ignorance and an overbearing smug and condescending attitude towards others. Not everyone is a financial guru, nor do we have the time to become one. We are here looking for answers and sharing our stories. Being helpful to those who post will go along way towards your credibility.

    @Traciatim: Why of course I did, along with 60,000 other Canadians in similar circumstances. A condescending attitude does not make you appear smarter. Please post constructively or don’t post at all.

  201. @Roscoe: I agree. I didn’t find any value in Walter’s comments. I don’t find the investment choices too restrictive. I bought a couple stocks for a long term hold this year. Now I have to decide to sell them while I’m down $600 on my $10,000 and pay the penalty for the remainder of the year, or hold them for a while and try to get my $10,000 out. The CRA told me it’s my choice.
    I have no use for people that tell you what you should have done. I figured out the rules as soon as I got my bill for $300, why would I start reading how RRSP’s work.

  202. @Roscoe: You started that bashing of CIBC and an advisor, because you claimed that they didn’t tell you. I know for a fact that you had received some paper explaining the rules including website addresses and so on. Your complaining that its everyone else’s fault “not yours” for your action. But to now blame me if people jump on you for your blame game whine on this form.

    But hey if you said that you made a bad decision and it’ll cost you because “I didn’t understand the rules” then ya I could see some of your point but DON’T blame others for it, as you’ll get slammed everytime. Besides if you were really looking for answers you would have asked them without accusing others for your lack of knowledge in the matter.

    @Kurt: read the RRSP rules as the rules for the TFSA is the same for over contribution and how it is applied as it was stated in the beginning. After reading your earlier posts its clear that you need to spend sometime read up on RRSP’s as well. At least you have learn something from this, after the fact that is. I don’t believe that you and the 70k others are entitled for a tax break on it.

    And a final note, ignorance of the law is NOT a defense. ask any judge !!

  203. Jimmy 9 Lives

    There should be no income tax in the first place. Why on earth would you want to punish people for working? Tax consumption instead. 15% Sales tax and 0% Income tax. All you idiots just don’t get it. We keep adding new deductions, new tax free, why not just scrap the tax all together and replace with a flat 15% sales tax and rain in government spending? Imagine the wealth created over a decade?

  204. gosh…that would be great at only 15% tax on consumption. But, we all know how bad the government is with money, if it was decided to go that route they would be looking at 75-80% just so the lefties can spend, spend, spend like today so that nothing changes. It’s so sad.

  205. Jimmy9: Ha, you’re dreaming. In 2009 the GST was 5% and brought in 25.7B. The total revenue was 233B. So assuming that all taxes and fees are shifted to consumption tax it would at the absolute minimum be 45%. That’s also assuming there would be no reduction in discresionary spending . . . so we’d probably call it a nice even 50%.

  206. Traciatim, your assuming that the governments debt won’t get paid off add another 30% for debt repayment..

  207. The interest rate on my TFSA is current 1.25% annually, compounded monthly. Who determines this rate? And when/how does it fluctuate? The bank of Canada raised prime to 0.75% on July 20th. Does that mean that my TFSA rate just increased at the same time? Where is this information? My TFSA is held with TD Canada trust.

    Also interesting. To attain a yield greater than your TFSA with a GIC, you’d have to lock it in for 4years or more. Not very appealing since the TFSA can be withdrawn anytime.

    • Canadian Capitalist

      @TMART: Yes, if you want a higher interest rate, you earn it by partly giving up liquidity. The higher rates on GICs also reflect the fact that you are accepting some risk of interest rate fluctuations. There is no risk in savings accounts, which is why they pay so little.

      Your bank has no idea of your contribution room. If you have registered for an epass, you can find your 2010 contribution room from the CRA website:

  208. Yes fixed income products are low paying right now. It may improve as we go further as the new economy gets a foot hold. we’ll have to see how it goes thou.

  209. Is the interest rate of the TFSA limited to 2%?

    If I call my bank, can they tell me my remaining contribution room at this very moment? So that I can top up my account without incurring over contribution penalties?

  210. TMART short answer “no” its your responsablity to track the contribution room.

  211. Is it possible to have the funds in our TFSA moved by our bank to a mutual fund like the Dynamics precious metals fund and it still be tax free?
    The interest rate is so low that it isn’t really saving us much tax wise?

    • @ulster49: You can *transfer* a TFSA from one institution to any other. Just make sure you submit a transfer form to the receiving institution. Banks may charge anywhere from $125 to $150 as a transfer fee. Negotiate with the receiving institution to provide a refund of the transfer fee.

  212. Thank you Canadian Capitalist for the response however I possibly did not explain myself properly — I would like to purchase with my TFSA $ mutual funds namely Dynamics precious metals fund.
    Can this be done through the bank that has my TFSA and is it eligible for the tax free or will I be penalized on it — let’s say if it doubles in the next year?

  213. ulster49
    if its with the same institution it’ll be even easier to do. Just buy the mutual fund (assuming that your institution sells them)
    NO you shouldn’t be penalized for switching to a mutual fund from a interest savings account, it doesn’t matter as to what it does up, down or no movement.

  214. What the heck does this have to do with TFSA? nothing!!!

    Stephenie if you think that “addition to big mistakes that could cost us our lives!” Is nothing more then fear mongering. One thing for sure is that you should NOT be allowed to get on an airplane. A total nut job..

  215. Hey, I’m a 21 year old university student and have been investing in stocks since I turned 19. Recently I took out a 10,000 dollar student line of credit and have since invested most of it. the dividends pay the monthly payments and the principle amount. I only work in the summer months and don’t earn enough to pay income taxes. I was wondering if this student line of credit will be considered taxable income? Can I deduct this money for borrowing to invest?

  216. @unbertw, one simple question why?
    its obvious that you can NOT afford to lose any amount so why borrow from your education. Quite frankly it doesn’t make any sense at all.

  217. Sorry Walter, I should have explained paying for school isn’t a problem, scholarships and savings are more than paying for school. So I can afford to accept a higher level of risk by leveraging my portfolio. So it does make sense to accept a higher level of risk at this point in my life.

  218. unbertw, I disagree with your statement about affording to accept a higher level of risk. If you lose then what? As in the past people thought that they wouldn’t lose. your age isn’t going ot save you if things go wrong.

  219. Thanks for the advice Walter, so does anyone know the answer to my question?

  220. unbertw, A good move—– as far as I can see you will not be taxed on the income as it is a TFSA and I would like also know if the funds you borrowed can be deducted because you borrowed to invest.
    Someone out there must know the answer to this.

  221. No, interest on funds borrowed and used to invest inside a TSFA are not tax deductible.
    Chapter 1 Paragraph 3

    Also, unbertw, money you borrow and pay interest on in order to earn income (Generally other interest or Dividends) the interest you pay is usually tax deductible. There are lots of ins and outs though so you probably want to consult with a tax professional or even just call the CRA and ask. I don’t believe borrowing money (your LoC) counts as income.

  222. Thanks Traciatim, clears things up for me. I always enjoy checking up on this site from time to time there is usually some pretty informative discussions going on. Thanks to everybody who contributes!

  223. Also as a side note, as long as the companies dividends stay (on average between them all) above 4.5% which is the interest I am paying on my LOC, then I wont be losing any money correct? The share price can fluctuate wherever as long as I’m earning more then the minimum monthly payment. So technically isn’t this a fairly safe investment? All of the companies in my portfolio would have to decrease their dividends by 20-50% for it to hurt me.

    I know its away from the TFSA topic but I enjoy hearing your opinions.


  224. @unbertw: Couple of points. When you borrow money on a line of credit, it is not income. You’ve simply borrowed money.

    If you use the borrowed money, deposit it in a TFSA and use it to buy stocks, as Traciatim pointed out, the interest on your loan is not tax deductible. Tax deduction of investment interest is a moot point anyway since you note that you don’t earn enough to pay taxes.

    Regarding your investment strategy, you are confusing dividend yield with total return. Over the time period you own an investment, if you earn $x in dividends and lose $x of your capital, your rate of return is zero but you have earned some dividends.

    I won’t call investing for dividends fairly safe. It is still investing in stocks and as anyone who lived through the 2008-09 bear market will tell you, even dividend stocks can lose quite a bit of value. A 5% dividend yield is cold comfort if you lose 50% of your capital.

    That doesn’t mean you shouldn’t invest in stocks; only that you should be aware of the risks. Whether the risks you take are appropriate is a question only you can answer.

  225. Your questions: “I was wondering if this student line of credit will be considered taxable income?” short answer no.

    “Can I deduct this money for borrowing to invest?” short answer again no. unless it is outside your TFSA any registered account.

    “as long as the companies dividends stay (on average between them all) above 4.5% which is the interest I am paying on my LOC, then I wont be losing any money correct?” yes and no, is the LOC locked in for a peroid of time as if its a floating rate you can be harmed if rates move quickly. And dividends are not garanteed to be paid out. As dividends can be suspended reducted or cancelled all together.

    “The share price can fluctuate wherever as long as I’m earning more then the minimum monthly payment. So technically isn’t this a fairly safe investment?” No the investment can fall to zero. every investment has some level of risk some very high some very low but never zero even government bonds have risk.

    ” All of the companies in my portfolio would have to decrease their dividends by 20-50% for it to hurt me.” it can happen that these stocks or any stock to stop paying dividends and that’ll make those stocks fall very fast. Then wham your stuck selling at a loss nor is it paying dividends to make payments on the loan. a good example of this is trp back in 2000.

    I hope this helps.
    what stocks do you like/own.

  226. Thanks Walter, that is something I’ve considered and its definately good advice all around. I’ve made few gains since buying and I’m going to continue to watch it closely and if I feel any pressure I can always get out. Thanks for the advice everyone.

    @best mortgage deals.. hope who needs what?

  227. This TFSA is the greatest gift the gov’t has ever given to us. As a high risk commodities investor, the 25% capital gains is always a bit hefty when we are the ones taking all the risk. After two years of trading, wife’s tfsa is now at approx. 38,000 and mine at 26,500. This is something we should have had many years ago…………Thanks to the gov’t for finally giving us a nice tool to work with. The small amount of money that we are alloted in the tfsa can serve nicely for high risk investments. We are fully using it to our advantage.

  228. Pingback: The Advantages of RRSPs over TFSAs | Canadian Capitalist

  229. Pingback: The Advantages of RRSPs over TFSAs | MoneySense

  230. Pingback: Ranting against RRSPs | MoneySense

  231. every january, transfer 5000 to your tfsa and buy 5 penny stocks for 1000 each
    in 3 years you will have 15 of these
    any home runs are tax-free

  232. I did not read all of the comments so this may have been already pointed out..mentioned.
    The first thing is to get rid of the mind set of thinking of the TFSA.. as a savings method…
    If you want to save…buy some nice savings bonds…make your 1 or 2 percent…pay the taxes..
    Big deal..maybe you actually beat inflation..doubtful.
    Use a TFSA as a speculative vehicle. Put $5,000 in and buy stocks that have some sort of growth
    If you invested the max. 5 years in a row and had any sort of growth you could get lucky and come
    out with a profit that might change your standard of living.
    Making $50,000 tax free is what to strive for.
    Better do it quick because when the Govt. sees people making $20-30,000 and paying no taxes
    they will change the rules.

  233. Peter, I don’t follow your comment. every person has they’re own concept of what they would do with the cash in a TFSA. Besides there is plenty of bonds that are paying more then the 1-2% that you’e mentioned.
    Stocks aren’t as speculative as you say, in fact you could get stocks that are paying higher dividends then bonds. just watch the numbers thou. A good dividend paying ETF would be a good start with.

    I can agree with you on the government changing the rules, but one needs to follow the rules and change with the rules when they change.

  234. The tax free savings account is great for Canadians as everybody will be richer than they used to be. In the United States, they tax your savings account and tax any interest you gain from the bank that’s over $100.

  235. thx jimmy, for your input. I’m always surprised that everyone compares us to the US. Jimmy are you aware that in the UK their version of the TFSA (that started in 99) the contribrution max is 10,200 pounds sterling. In canadian dollars thats around $16k. Jimmy are you also aware that you are required to report all your interest collected in canada even thou you didn’t get a slip from the bank, which is the same in the US. Just saying Jimmy,

  236. Can a TFSA be funded with foreign currency, eg, British Pound?
    Thank you for an answer.

  237. Yes you can with a ETF “FXB” I’m not sure why you would want too but FXB will give you exposure to the British Pound.

  238. Thank you for your reply, Walter.

    My desire is to fund the TFSA with a quantity of foreign currency …the actual bank notes.
    The currency is not the Pound, which I used only as an example.

    Is anyone aware of a recognized institution which will accept and hold foreign currency (Central Bank Notes) for deposit as readily as they would Canadian Bank Notes…dollars, in my TFSA?

    TD Trust & HSBC initially said no, but when I showed HSBC the bulletin indicating that RRSPs can now accept foreign currency as a qualified investment, and that TFSAs are governed by the same ‘investment qualification’ guidelines, the “Relationship Manager” said “Hmmmm. Let me look into this, but it doesn’t look like we can, even with this info!

    Since each institution is free to accept “F/Cs” or not, does anyone know which one(s) does?
    Finding one that does (SOON) will enable me to put an expected and significant Cap.Gains to better use than “UnoWho”.

    My tax lawyer suggested this, but she doesn’t know of a bank etc, which would accept the “F/C” bank notes on straight deposit.

    Thank you for any help, and thank you for this blog.

    Very good spirit of service here. Thank you very much.

  239. Namoh from my understanding of the TFSA’s rule to hold F/C’s, short answer no. Why? because Canada or better yet canadian banks aren’t setup for it. Besides canada is not know to be a financial center. Have you ever noticed that you can easily open a US dollar account (any type) and anything else is a total headache.
    So from what you’ve responded too. You are looking for either a bond denominated in a foreign currency, or a CD in that currency. Having said that I know that TD waterhouse does allow trading into 10 different markets and 7 different currencies, (I’m not sure if it includes TFSA’s) so I would assume that they may have something like what your looking for. Please note it is going to be expensive with a small account.

  240. So if I deposit $5000 into a TFSA and invest it in some penny stock and make some gains, when I sell the stocks… a) does the money go directly back into the TFSA and b) is this considered depositing more than the $5000 yearly limit?

  241. Rob, you deposit 5000, buy a penny stock, sell that stock at a 100% profit. You now have a contribution room of $0, a $10000 balance. At any point you can now withdraw those funds and the amount withdrawn will be added to the following year (IE, When you get your next 5K to add to your contribution limit).

    So if you take out the full 10K you’d have to wait until the next year and you would get your 10K of contribution room, plus your extra 5K for the next year so you would have more than most people.

    This is not considered an over contribution. You have to be very careful with withdrawals and re-contribution in the same year, since you don’t receive you room back until the next year. This is the rule that tripped up a lot of people.

  242. Rob,
    a) no your gain goes into my account.. Come on Rob what kind of a question is that where else would it go?
    b) no, How did you think of such a $#& question like that. Since you said that you bought a penny stock from your TFSA. Rob its not April 1st and its wasn’t funny.

  243. It is pretty amazing that the Canadian Government would even allow it’s citizens a chance to build any sort of wealth that was not subjected to the tax man (TFSA). It seems almost to good to be true! Do you think that someday they may come along and take it way again? I hope not. 🙂

  244. Could anyone confirm for me if this is correct? I opened a Canadian TFSA thru my bank and I deposited $5000.00 and invested it in a U.S. stock on the N.York exchange.There was the intial charge for the conversion to U.S. dollars by the bank for doing the brokerage transaction. After making a profit on this investment,I sold it and purchased another stock on the N.York exchange only seconds later.When I received the settlement statement,it showed that the bank converted the funds from the sale of the stock immediately into Canadian dollars and then back to U.S. dollars to make the next trade purchase.The bank charged me a whopping 11% when I sold the shares and 7% when I purchased them. I enquired at the bank and they said that under Canadian law that foreign funds cannot be held in a Canadian TFSA even if using them to purchase another stock the same day.All the money I made on the sale of the stock was chewed up by the Bank. Is it true that U.S. funds cannot be held for any lenght to mtime in the TFSA? Does anyone know if this is true? Thank-you.

  245. @Byron: Which brokerage do you have your accounts with? Converting currency back and forth is a huge profit center for many brokers. I have my accounts with TD Waterhouse, which offers what it calls wash trading that allows clients to avoid forced currency conversions of the kind you were hit with.

    Check out other posts on this topic on this blog:

  246. If I have an investment in a TFSA and receive a dividend cheque, that cheque is tax free right?

  247. Pingback: A Blanket Ban on RRSP Swaps is a Bad Idea | Canadian Capitalist

  248. I think I knowthe answer, but Our Son has been Non Residant for several years, pays No Taxes here, can we set up a TFSA Account for him as eventually He will return?

  249. @Howard Hare, You cannot open a TFSA for a non resident, the “paying Tax” is a non issue as a person that lives in Canada and only makes 10k per year can put 5k into a TFSA. To expand on the non resident issue, your son has (As I understand it) lose the year/s of contribution room that is granted every. So if he moves back to Canada then that is the year that he can put in 5k and not from when this program started.
    Question where does your son live now? (which country)?

  250. I have a TFSA on TD and it is limited to $5000 a year, what if I apply another TFSA in other bank, so that means I can save another $5000 a year.

  251. Oh my god Ben…. what a comment !!!
    Ben it doesn’t matter who or how many TFSA accounts you have or opened. Its based on the total amount deposited in any give year.

    For example. you could open 10 TFSA with as many banks but, the max that you can deposit for that year is 5k. (assuming that you haven’t deposited your max from the other years) So it will stand that you could have the maximum deposited into a TFSA acount/s starting January 1st is 20k.
    You CANNOT deposit 5k in each 10 different accounts and not expect the tax department not seizing it.

  252. Azmat Hussain

    I put $5,000 in TFSA in 2009 eight months later I withdrew the amount, now Revenue Canada wants to charge me $1100 tax? Now I have to find a way to fight this,

  253. Azmat – its 2012. There has been a ton of this in the press back in 2010 in fact CRA had waved penilties to people that made a mistake in the 2009 year.
    Heavy penilties and fines were issued to people who went out of their way to cheat the system. If your being told to caugh up $1100 dollars it sounds like you had tried to cheat the system. The Rules of what you can and CANNOT do with a TFSA is on the web.

  254. Walter,my son has lived in China for almost fifteen years, went there straight after University for a year, various girls interfered along the way,now he has decided to stay, although he is planning to relocate to HK.
    He has just inherited a sizeable amount, so I was looking to put some into a TFSA, but it sounds like what we can do is put money in my name and my wife’s and leave the TFSA’s in our will to him.

  255. @Howard, HK doesn’t have inheritance tax, nor do they tax dividends plus their top rate is only 17%.. so explain what the issue is with your son the non resident? But guess what since he is living in China (they do have a inheritance tax) he’ll need to file the paperwork for that money (recieved or not) and pay the going rate. Besides if the person that past away was in Canada there is a withholding tax as outlined in the canadian tax code.
    Also note: not all countries tax offices will accept a TFSA as such and therefor they must report it to the tax department and pay tax on it in their country that they live in.
    There is nothing for “free” these days Howard.

  256. Hi Walter, I’m brand new to TFSA’s and Stocks, but have some questions for you.
    My credit union told me, to invest in stocks I had to open up an account with Credential Direct(CD). So I opened up a TSFA with CD and put $1000 in it. IF I end up making money for, simplicity sake say I make $10,000 when I sell my shares, so now I have $10,000 in my TFSA account at CD. Do I have to open up a TFSA at my credit union to transfer the $10,000 into it from CD, rather than just into my chequing account? If I do have to open up a TFSA at my credit union and transfer the $10,000 into it from CD, is that considered to be over the $5000 contribution limit? >>> Would I only be able to transfer $5000 from CD to credit union? What are my options if I have $10,000 in my CD TFSA account, basically what would you do if you were in this situation?

    Please keep in mind I’m just a student and I’m trying to get my feet wet with investing, stocks, TFSA’s etc.

    Thanks for your time and help,


  257. Hi Kurtis,
    wow lots of questions.
    Ok lets see if I follow you. You opened a (TFSA) trading account? and you made 10k. (for simplicity)
    Your CD should already be in a TFSA I’m including the link

    It is already in a TFSA, so what you decide to do with it doesn’t matter. The 9k profit is not considered as extra contribution. in fact you only put in $1k you could still deposit the remaining $4000 and not be foul of the rules.

    your options inside the CD is the same as all (TFSA) brakerage accounts and they include:

    Trade stocks, mutual funds, fixed income and options on North American markets.
    Accounts are held individually only.
    Others may trade on your behalf, provided they have trading authority.
    Trade options in your TFSA (long calls, puts and covered call writing are available).

    That was a cut and paste from the CD site.
    Have a look at my site on trading I just started it so its a liitle bare.

    If you did NOT open the account in the TSFA, CD then go back there and open the account in the TFSA vs a regular account.

  258. Walter,

    Nice site…very plain, but people will come to read the content and not look at fancy graphics and crap like that. I will definitely book mark it and check it often.

    Yes I opened up a TFSA at CD, so any profit that I make I can simply just transfer it to my chequing account at my credit union and I’m good to guy buy toys etc? =)

    Would I also be correct in saying that whatever profit you make in your TFSA(say $9k) you add that on top of the yearly $5k your allowed so the following year I would be able to contribute $14,000 into my TFSA? Or is that against the rules and cheating the system!

    Thanks again, I’m sure I could find all of these answers on the internet, but I often get confused and you seem to know what your talking about so it’s much appreciated.


  259. The rules:
    You can deposit 5k per year. 18 years or older
    You can withdrawal monies at anytime. But you can NOT re-invest till year. (assuming you maxed out)
    the following year you can deposit the new 5k amount plus any amount that you have withdrawn in the past. We’ll leave inflation increases for now.

    In your case: year 1, deposited 1k
    year 1 (continued) your investments increased to 10k and you withdrew 9k. (you are still able to deposit 4k which is carried forward)
    Year 1 ends:
    year 2 you can deposit (5k+4k+9k) = 18k in year two which is your max. for that year.
    year 2 (cont.) you deposited 18k on January 2nd. it grows to 100k
    Year2 ends.
    Year 3 you can deposit 5k on Janauary 2nd
    year 3 (cont.) your TSFA keeps growing.

    I hope that makes sense.

  260. Ok, thanks.

    So basically it’s:

    $5K yearly deposit + $xK —> $5k minus your deposit for the previous year(unless you did the max) + any withdrawals from the previous year = Your total for the current year.

    I think I got it!

    Thanks again for all the help,


  261. The gullibility of Canadians … breath-taking.

    What a bunch of maroons! As if the government won’t find other ways to tax you midget wankers!

  262. God save us from the idiot public.

  263. Is there any time frame in which assets must be taken out,can yo just deposit monies ,let them compound, then pass them on Tax and Probate Free to a designated Beneficiary?

  264. Geeezzzz thanks for that wonderful input Gupta. Its so nice to be so informed by your wisdom….not

  265. HMH I know there wouldnt be any tax on the TFSA I can’t say for sure if it would be subject to probate or not. I do know that there is no probate fees when the beneficiary is the spouse.

    • Just thought of something that appears to make sense from what I understand on TFSA but will CRA allow it. First, you have one high income earner and one low to on income spouse. So low income earner wants to start a TFSA but has no cash so high income spouse gives the low income spouse $20k to catch up on TFSA in January of 2012. In November 2012, low income earner transfers out all items from TFSA to her own personal trading account. This provides $20k (give or take) of TFSA contribution room for 2013 for the lower income person. If this is repeated in 2013, then the lower income person will now have $45k in personal trading account and $25 of TFSA contribution room at end of 2013.

      To me this appears to be a way around the income attribution rules. Can’t see how CRA would let this happen though. Basically higher income spouse is funding lower income spouses trading account legally via the pass through of the TFSA without the income attribution rules applying.

      Am i missing something here.

  266. Fred, I can answer this without looking through the CRA’s books.
    First off your math is wrong 20k is 20k not 45k. its an either or thing. Why would anyone open then a month later move those funds out of a tax sheltered account is beyond me! let me put it this way why would the low income person decide to transfer it into a taxable account vs leaving it tax free? There is a reason that person is poor, now I know why.
    As for the attribution rules no you don’t have that right either. That is also one of your main problems as well. If the one spouse loans monies to the other they must put it in writing and pay the interest amount to the other by year end. This doesn’t apply to RSP or to TFSA where it doesn’t apply. By then moving it into a regular account is a breach of the sprite of the law and the CRA well assess penalities for it.

    Say Fred forget about trying to goat the system as most canadians can’t even figure out the basic rules around the TFSA.

    • Let me clarify then:

      20K contribution in year 1 to TFSA, 20k withdrawal year 1 from TFSA, $20k into non registered account

      Year 2, beginning cont. limit $25k ($20k (taken out in year 1) + $5k(additional contribution room yr2)), contribution in year 2 $25k to TFSA, $25k withdrawal in year 2 from TFSA, $25k into non-registered account year 2 for a total of $45k in non registered account.

      If high income spouse has maxed out RRSP or cannot contribute to it due to company pension and has extra cash to invest, say for example $60k in non-registered account, then this would be a means to get some of that money into the lower income person’s investment account and then…that would result in lower taxes being paid on any income generated by the amount in the hands of the lower income spouse.

      I fully understand the attribution rules. If the money was to go directly to lower spouse and she put it in her non-registered account then attribution rules apply assuming there is a direct connection between the cash and the investment; which in the basic case there is.

      In this case, attribution does not exist from what I can tell. Going into the TFSA there is no attribution to the higher income spouse; that I am sure of. When it comes out the money belongs to the lower income person so unless some rule applies , that I’m not familiar with, then this should work.

      Yes it does squirt the spirit of the law but..if the lower income spouse withdraws the money from the TFSA, pays of a loan that they have and then borrows again to invest then that should be fine in my mind. There has to be a direct path of the money for attribution to occur..from my understanding. I know this works with gifts of money from spouse to spouse. If directly invested then attribution applies.

  267. Fred thx for clarifying what you’re saying.
    there are a number of things that people don’t do when it comes to tax planning.
    first one is that the high income person doesn’t income split right out of the bat. there are a number of different methods that work best for this. Second the lower income spouse could just as easily just invest into the lower incomes business. etc.
    On to TFSA’s, why would anyone want to pull out monies from a TFSA just to put it into a regular account there is no tax benefit for doing so, just a ton of headache when the questions start flying from CRA.

    The way you have presented this story is that the lower income person will always have the max to contribute to the TSFA by pulling it out. Again why?

    There are rules that apply to intent, if the entry intent is to use the TSFA to move monies around just to avoid the attribution. its pretty clear that by doing so is fraud, as there is no intent for that monies to remain outside of the higher incomes hands.

    Like I said before don’t try to goat the system as most canadians have no clue on how the TFSA works to begin with.

  268. I think you are misunderstanding here:

    First, the reason to pull out of TFSA is to generate TFSA contribution room that then allows the higher income person to contribute into the lower income person’s TFSA thus shifting more investment funds to the lower income person. Lower income person is then taxed at a lower rate so if looking at it in terms of family taxation, the net family tax rate will drop.

    Secondly, from the following website:

    Tax Free Savings Accounts (TFSA) – The TFSA has a specifically allows the account to be used for income splitting. The higher income spouse can gift funds to contribute to the lower income spouse’s TFSA. The income earned in the TFSA is tax-free and not subject to attribution. In addition, if withdrawn by the lower income spouse is not subject to attribution.

    Thirdly, It is not fraud if you are following the rules. As I said, many do the following all the time. Money is gifted from high income to lower income. Lower income uses the gift to payoff bills or a car loan or whatever but uses up the funds. The lower income person then borrows funds to invest. In essence the funds are transferred to the lower income person but in a proper way. This is done all the time and in no way is it fraud.

    The higher income person has sufficient funds to contribute each year to the lower income’s TFSA. That is how the TFSA works; anyone can contribute to anyone else’s TFSA.

  269. Been looking around a bit more. Some sights are saying that the attribution starts again if you remove funds from the TFSA and invest it. Which does make sense and thus my concern for my “master plan”.

    I’d still like to confirm this with something from CRA but been on their website for awhile and still cannot find anything or even an interpretation.

  270. Seems to be confirmed in section 74.5(12) of the ITA.

    Here’s what it reads:

    “(12) Sections 74.1, 74.2 and 74.3 do not apply in respect of a transfer by an individual of property……

    (c) to the individual’s spouse or common-law partner,

    (i) while the property, or property substituted for it, is held under a TFSA of which the spouse or common-law partner is the holder, and

    (ii) to the extent that the spouse or common-law partner does not, at the time of the contribution of the property under the TFSA, have an excess TFSA amount (as defined in subsection 207.01(1)).”

    So it has to be in the TFSA I think. I can read english but my comprehension of ITA is about at a grade 1 level.

    • Talked to someone today who had called CRA about this issue and CRA told her that attribution does not apply after withdrawal from TFSA which goes against what I pulled out from ITA on the earlier post.

      So now I’m quite confused. Anyone know if you can get CRA to provide clarification in writing on this for your protection.

  271. What if your spouse contributes $20k to your TFSA and now it is worth $25k. I assume that if you just removed the $5k of earnings and invested that then attribution would not apply as generally CRA does not attribute back earnings on earnings. I think you’d have a case there but..when you withdraw the $5k, does CRA assume that is $4k of initial investment and $1k of earnings (proportionate to the entire TFSA account position)?

    Still can anyone clarify any better the original CRA attribution as it relates to the removing initial contributions by your spouse and investing in non-registered account?

  272. I am just opening a TFSA now (I know, I know, I’m behind on the game), does this mean that I have $5,000 of room for each year since 2009? At what point did it switch to $5,500?