Location: Western Hemisphere
Posted on: 27-02-08 08:24:47
http://www.canada.com/vancouversun/story.html?id=e5ee6401-4b0d-44d9-b6c8-f92c849d7d04&k=1777
A new tax free savings plan (TFSA) was announced in the federal budget. Highlights:
Allows contribution upto $5000 per person
No tax on cap gains, interest, etc when withdrawn
Allows withdrawals anytime without penalty without losing contribution room
Cannot be used as a deduction on your tax return
Unused contribution room can be carried forward to future years
Question:
How would contribution room be determined? Does everyone that has earned income automatically get the $5000 room?
Would employers be allowed to do paycheck deduction (before taxes) in order to contribute or is it an individuals initiative to save (then, it's not an investment made using before tax money, but an investment that grows tax free)?
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Dimple2001
This is similar to the Roth IRA offered in the US.
I hope there are different types of investment instruments like GICs/mutual funds/individual stock available to be used with this account that make it worth while to use this account.
Location: carl sagan's universe
Posted on: 27-02-08 10:18:21
Hi ash_canada
You can invest in all the above vehicles you have mentioned.
Location: carl sagan's universe
Posted on: 27-02-08 14:01:05
1. Registered Tax-Free Savings Accounts (TFSAs)
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 and will create contribution room for future savings.
Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits like the Canada Child Tax Benefit, Goods and Services Tax Credit, Old Age Security Benefits, Guaranteed Income Supplement or Employment Insurance benefits.
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 the same investments allowed in a Registered Retirement Savings Plan, including mutual funds, public securities, government or corporate bonds, guaranteed investment certificates and, in certain cases, shares of small business corporations.
The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
2. Registered Education Savings Plans (RESP) Changes
Starting in 2008, the budget proposes 10-year extensions for time limits and age limits relating to RESPs
The number of contribution years is extended from 21 years to 31 years
The deadline for termination of the plan is extended from the 25th anniversary date to the 35th anniversary date
The beneficiary age limit for contributions to family plans is extended from 21 years to 31 years
The period for receiving Educational Assistance Payments includes a six-month grace period after the beneficiary ceases to be enrolled in a qualified program
3. Dividend Tax Credit Changes
The dividend gross-up factor and dividend tax credit for eligible dividends will be reduced over time
By 2012, an eligible dividend will be grossed-up by 38% (compared to 45% currently)
By 2012, the dividend tax credit will be reduced to 15% (compared to 19% currently)
These changes will result in an increase in the effective federal tax rate on eligible dividends from 14.55% to 19.29% by 2012, assuming no further tax rate changes.
Quote:
Originally posted by investpro
1. Registered Tax-Free Savings Accounts (TFSAs)
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 and will create contribution room for future savings.
Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits like the Canada Child Tax Benefit, Goods and Services Tax Credit, Old Age Security Benefits, Guaranteed Income Supplement or Employment Insurance benefits.
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 the same investments allowed in a Registered Retirement Savings Plan, including mutual funds, public securities, government or corporate bonds, guaranteed investment certificates and, in certain cases, shares of small business corporations.
The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
2. Registered Education Savings Plans (RESP) Changes
Starting in 2008, the budget proposes 10-year extensions for time limits and age limits relating to RESPs
The number of contribution years is extended from 21 years to 31 years
The deadline for termination of the plan is extended from the 25th anniversary date to the 35th anniversary date
The beneficiary age limit for contributions to family plans is extended from 21 years to 31 years
The period for receiving Educational Assistance Payments includes a six-month grace period after the beneficiary ceases to be enrolled in a qualified program
3. Dividend Tax Credit Changes
The dividend gross-up factor and dividend tax credit for eligible dividends will be reduced over time
By 2012, an eligible dividend will be grossed-up by 38% (compared to 45% currently)
By 2012, the dividend tax credit will be reduced to 15% (compared to 19% currently)
These changes will result in an increase in the effective federal tax rate on eligible dividends from 14.55% to 19.29% by 2012, assuming no further tax rate changes.
Thx Investpro, I liked your gold tip last yr. Today Gold is $967, I am glad I took your tip.
Just a couple of questions:
1) On the face of it TFSA really looks cool, specially since there is not withdrawal or withholding tax. I think TFSA will be became a boon for people after exhausting RRSP room. Any CD can throw some light, since there is no tax implication how does the higher income spouse benefit from contributing in lower income spouse? I am confused or maybe tired from the hectic RRSP season.
2) I presume this DTC change is only for public corporation and not private corp (CCPC) right?
Unlike RRSP, you dont get any benefit on the principal saved in the TSFA, just on the returns...so I dont know whats the big deal with it...earnings on $5000/pa even if assumed an average 5% pa returns is a mere $250.00, the tax saving on that is only about $100.00 max..for the highest tax bracket.
There could be higher capital gains, if you are a bigger player and over 10 years investment window..nothing immediate.
Maybe I am wrong or cant imagine the bigger picture.
Hiren
Quote:
Originally posted by hchheda
Unlike RRSP, you dont get any benefit on the principal saved in the TSFA, just on the returns...so I dont know whats the big deal with it...earnings on $5000/pa even if assumed an average 5% pa returns is a mere $250.00, the tax saving on that is only about $100.00 max..for the highest tax bracket.
There could be higher capital gains, if you are a bigger player and over 10 years investment window..nothing immediate.
Maybe I am wrong or cant imagine the bigger picture.
Hiren
I assume if one were to look at like this;
Husband contribution 5,000 spousal 5000= $10K
Purchased 1000 units @ $10 (it gets way more complicated to $ average it over 10 yrs, since this is a simple sample illustration, KISS)
Contributed this way for 10 years= principal: $100,000
Unit price after ten yrs suppose $15= profit $ 50,000 no capital gain
Interest earned on income at 5% reinvested or not is taxfree money
I am not sure if you can tax leverage this or roll it to RSP to milk it for deferal advantages.
I wonder if by doing this you attract Alternate Minimum tax's atttention.
It is new, but surely looks like a good thing, anything that is not taxed is free money man.
Lots of grey area here.
