Taxpayers hit with penalties on tax-free savings accounts


Jump to Page:
< Previous  [ 1 ]  [ 2 ]  [ 3 ]  [ 4 ]  [ 5 ]    Next >



newton   
Member since: Mar 07
Posts: 169
Location: Toronto

Post ID: #PID Posted on: 14-06-10 12:14:46

Quote:
Originally posted by pratickm


To be fair, you should discount both values down to present value since you are talking about a future value.
The $1,000 tax "refund" you receive today should be valued higher than the $1,000 you will receive after 30 years from either the RRSP or the TFSA.
Which is why it's important to assume that the $1,000 is rolled into the RRSP and not kept outside it.

Your conclusion is valid, though.
I think in this case the TFSA will beat the RRSP.




I do not see the need to discount to PV since I have taken into account the FV of the $1000 by reinvesting it at at realistic rate of return. So what I am doing is comparing the FV of both. Of course the FV of $1000 which is $2653 will also be taxed so that reduces the value of the RRSP further.....am I missing something?



pratickm   
Member since: Feb 04
Posts: 2831
Location: Toronto

Post ID: #PID Posted on: 14-06-10 12:27:52

Quote:
Originally posted by newton
I do not see the need to discount to PV since I have taken into account the FV of the $1000 by reinvesting it at at realistic rate of return. So what I am doing is comparing the FV of both. Of course the FV of $1000 which is $2653 will also be taxed so that reduces the value of the RRSP further

Correct, that's what I said in my post above that the returns of RRSP would reduce once you account for the taxes on the non reg. investment.

Even though in this example, the TFSA comes out ahead of the RRSP, this is a static example of one year's contribution only.
If you take into account that typically RRSP room is more than TFSA for most people (and will likely continue to be so) and if you assume that MTR in retirement is so much lower than during the working years, it would be interesting to see what the results are.
There are many variables in that case, though, like OAS clawback etc.
For folks in their early 20s, the TFSA offers a huge advantage if they religiously contribute the maximum every year for their entire working lives.
It may end up beating the RRSP on an after tax basis.
Which is also why I think the program will either be clawed back to dissolved at some point in the future.


-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"


ashedfc   
Member since: Jun 10
Posts: 2153
Location: GTA

Post ID: #PID Posted on: 16-06-10 11:15:23

TFSA is for sure a better way of accumulating assets in a tax free way.
For example. $5000 every year starting 2009. Lets assume a person age 40years contributes $5000 every year starting 2009, in a T8 series fund. By the time the individual reaches 65 years (retirement age), assuming zero % (off course returns will be more, but lets take zero %). Lets ignore the contribution limit increase (inflation adjusted) in the future.
At age 65 he has $125000 in the TFSA, thereafter, he can withdraw T8 $835 every month tax free as his pension, & he still qualifies for OAS, GIS (because the income from TFSA does not affect the Govt. benefits).
If the returns over next 25years are more than zero, than the calculation of monthly income goes higher.
It makes absolute sense to use the TFSA route to create wealth. We have been using T8 Tactical funds with a Bond & Equity exposure to generate growth in TFSA accounts.

Also if the money for TFSA is from a Line of credit, then there are monthly income payments from TFSA accounts, which is used to service the interest of the Line of credit.



pratickm   
Member since: Feb 04
Posts: 2831
Location: Toronto

Post ID: #PID Posted on: 16-06-10 15:48:33

Quote:
Originally posted by ashedfc
It makes absolute sense to use the TFSA route to create wealth. We have been using T8 Tactical funds with a Bond & Equity exposure to generate growth in TFSA accounts.

I don't see the benefit of T funds for a non-taxable account.
The higher distributions than the regular units don't come free - you are gradually eroding NAV to get those higher distributions.
And the sustainability of the distributions are doubtful in the first place.
Since you are never going to pay tax in a TFSA regardless of the type of income received, why can't this be done as a simple conceptual SWP instead of a complicated T series?
And since CRA does not allow a switch between a non-registered investment holding regular units of a fund to a TFSA holding T units, it won't buy you any deferred capital gains either.
I guess people are just looking at the nominal distribution values without digging deeper and seeing where the distributions are coming from (" money out of thin air" ).

Quote:

Also if the money for TFSA is from a Line of credit, then there are monthly income payments from TFSA accounts, which is used to service the interest of the Line of credit.

The interest won't be tax deductible, right?
So if someone has an LOC and is itching to invest, why not do this non-registered and write off the interest instead of reducing the compounding effect of a TFSA?


-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"


ashedfc   
Member since: Jun 10
Posts: 2153
Location: GTA

Post ID: #PID Posted on: 16-06-10 17:37:31

There are lots of ways of financial creativity using a TFSA.
T8, T6 or even SWP it all possible, any withdrawal erodes value (either by reducing the No. of units or by reducing the value of units).
So, it comes to the same, is the growth more than income or less than income.
At age 65, even if there is a value adjustments by withdrawing more money, how long does a person lives. He is funding his pension (at least the account is doing its intended purpose).

Most pensioners are either having negligible income, or are getting clawback for benefits.
TFSA withdrawal or distribution solves that purpose.



ashedfc   
Member since: Jun 10
Posts: 2153
Location: GTA

Post ID: #PID Posted on: 16-06-10 17:39:57

As per patrickm
"The interest won't be tax deductible, right?
So if someone has an LOC and is itching to invest, why not do this non-registered and write off the interest instead of reducing the compounding effect of a TFSA?"
-------------

But all the capital gains, dividend, etc in a TFSA is Tax free,
as compared to a non-registered account, where there is interest tax deductibility, but gains are taxable.



ftfl   
Member since: Jul 06
Posts: 2335
Location:

Post ID: #PID Posted on: 01-07-10 00:54:48

The Honourable Keith Ashfield, Minister of National Revenue, and the Honourable Jim Flaherty, Minister of Finance, issued the following statement today:

June 25, 2010—The Government of Canada would like to provide an update on the recent administrative concerns expressed by some Canadians regarding the Tax Free Savings Account (TFSA).

2009 was the first year of the program and the response to the TFSA has been overwhelmingly positive. Approximately 4.7 million Canadians have taken out a TFSA since the program was initiated.

Our government recognizes that there was some genuine confusion about the rules for the TFSA in the first year. We understand that it may take time for some Canadians to learn about the program and for some financial institutions to properly inform their clients about this product.

The Government of Canada confirms that for the 2009 filing year, the first year of the program, we have taken the decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred. Our intention is to review each situation on a case-by-case basis and, where appropriate, waive taxes on excess contributions for this year.

For instance, individuals who used their TFSA as a regular banking account in 2009, making deposits and withdrawals on a frequent basis, or who have transferred funds between TFSAs at different institutions, but whose net contributions never exceeded the 2009 limit of $5000, may not be required to pay the tax on excess contributions for this year.

Of the nearly 4.7 million Canadians who have a TFSA, less than 2% (70,000) have recently received a letter from the Canada Revenue Agency asking to provide further information about their accounts before June 30, 2010. We have decided to extend this deadline from June 30 to August 3, 2010, to allow ample time for Canadians to provide the necessary information about their accounts.......
..........

http://www.cra-arc.gc.ca/whtsnw/tms/jntsttmnt-eng.html

Freddie.


*EDIT: http://www.tfsa.gc.ca/thingstoknow-eng.html
http://www.moneysense.ca/2010/06/20/apply-for-waiver-of-tfsa-over-contribution-penalties/





Jump to Page: < Previous  [ 1 ]  [ 2 ]  [ 3 ]  [ 4 ]  [ 5 ]    Next >

Discussions similar to: Taxpayers hit with penalties on tax-free savings accounts

Topic Forum Views Replies
RRSP ( 1 2 )
Accounting and Taxation 1452 7
some question related to RESP and RRSP
Financial Planning 2926 2
Nine ways to save on taxes using RRSPs ( 1 2 3 )
Financial Planning 4967 19
lost imm 1000 but have a xerox of it
Citizenship 1779 2
Experiences of ING Co. ? ( 1 2 )
Life 2347 12
Sticky: RRSP 101 (All RSP questions answered) ( 1 2 3 ... Last )
Tax benefits for Canadian Residents
Financial Planning 124712 122
spouser RRSP verses Own RRSP
Financial Planning 1798 3
Mortgage Paydown Vs RRSP ( 1 2 3 ... Last )
Financial Planning 7814 39
Spousal RRSP withdrawal under HBP
Accounting and Taxation 1468 2
Opening TFSA and RRSP ..?
Accounting and Taxation 1010 2
earning 32K , is it good to open RRSP ( 1 2 )
Financial Planning 3213 12
Should i contribute to my or my wife's RRSP (long term planning)
Accounting and Taxation 1269 4
Switching RRSP account from one bank to another
Financial Planning 1962 1
RRSP and FTHB
Real Estate & Mortgages 1817 3
Taxpayers hit with penalties on tax-free savings accounts ( 1 2 3 4 5 )
Accounting and Taxation 6911 30
How to replace a lost IMM 1000 document for OCI application? ( 1 2 3 )
Ask Immigration Expert 12911 14
RRSP contribution and panelty
Accounting and Taxation 1710 6
RRSP and TFSA
Financial Planning 1872 6
Spousal RRSP and HBP
Accounting and Taxation 1567 3
RRSP vs. TFSA: Which one will give optimum benefits and right for you?
Accounting and Taxation 1037 4
Secured RRSP/ TFSA @ 14% ( 1 2 )
Financial Planning 3006 10
2016 : TFSA/ RRSP - Where to invest ?
Financial Planning 2455 4
Question related to RRSP Unused Contribution ( 1 2 )
Financial Planning 2085 7
Simplii Financial Bank by CIBC has 3 % Interest rate for Savings Account -
Financial Planning 3164 2
RRSP withdrawal staying in Canada ( 1 2 )
Financial Planning 2959 7
 


Share:
















Advertise Contact Us Privacy Policy and Terms of Usage FAQ
Canadian Desi
© 2001 Marg eSolutions


Site designed, developed and maintained by Marg eSolutions Inc.