TFSA 2011

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steves
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Re: TFSA 2011

Post by steves »

Surely the loss of future tax revenue is offset by the immediate near term benefit of not having to pay out RRSP refunds. It's a wash IMHO.
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Re: TFSA 2011

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steves wrote:Surely the loss of future tax revenue is offset by the immediate near term benefit of not having to pay out RRSP refunds. It's a wash IMHO.
Retirees do not contribute to RSPs but still place money in their TFSAs and some pre retirees contribute to both the RSP and TFSA.
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Re: TFSA 2011

Post by Bylo Selhi »

ockham wrote:There are ~25million Canadians who are eligible TFSA contributors. So about 20% of them have actually contributed to a TFSA, and that 20% has used 40% of their available contribution room. Given this background, what is the public policy issue that is being solved or addressed by a proposal to double contribution room 5 years from now?? My spouse and I max out our TFSA on Jan 2 of each year, and will max it out on the same day if the limit is doubled. But so what? It still strikes me as empty public policy.
The same arguments were made about increasing RRSP limits a decade ago. Why do it when the vast majority of RRSP contribution room remains unused? Who benefits, other than a select few who are already looking after their retirement needs?

My wife and I have contributed the max to our RRSPs on Jan 2 every year going back some 30+ years when the max was a mere $3,500. We invested that money conservatively. We don't have any private pensions. Yet now we have more than enough in our RRSPs to retire comfortably and even, within a few years from when we convert to RRIFs, to have all of our OAS clawed back.

We don't need to increase contribution room. We need to increase the use of existing contribution room. I say this even though it goes against my personal interests. I'd max out my TFSA room every year even if it was double Steve's proposed doubling.

And as I've said before, I still don't see the logic in having a "Savings Account" for things like emergencies where you can't recontribute until the next calendar year because the bureaucracy can't track them any faster. Maybe that was a valid limitation a couple of generations ago, but today, when financial transactions occur instantaneously?
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Re: TFSA 2011

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TFSA boost would benefit everyone
Jonathan Chevreau wrote:That's because lower-income people struggling to save for retirement are punished if they save small amounts in RRSPs -when they retire, taxable withdrawals could mean the loss of some or all of their Guaranteed Income Supplement, which all three parties have promised to improve. This GIS effect was one reason anti-poverty groups pushed for TFSAs in the first place.

Mintz estimates marginal tax rates for lower-income seniors with $30,000 from CPP, interest and various transfers can result in marginal tax rates as high as 90% in some cases. But just as poor seniors won't suffer GIS clawbacks from TFSAs, so too middle-class retirees with big TFSAs won't suffer clawbacks of Old Age Security benefits.

For younger workers in low tax brackets, the TFSA is more attractive than RRSPs: The tax refund generat-ed by RRSPs is worth relatively more to higher-bracket workers. Many young people don't earn enough for large RRSP contributions in the first place, but TFSA room does not depend on a previous year's earned income. Mercer actuary Malcolm Hamilton estimates those earning up to $125,000 a year could do all their retirement saving exclusively in the TFSA. "RRSPs will only be needed for those with very high incomes."

The only group TFSA might not help are those deeply in debt. Toronto-based financial advisor Martin Kosterman says it's better to eliminate high-interest credit card debt than save a bit of tax on low-interest TFSA savings accounts. Better yet, "Why can't we just be taxed less?"

With the first wave of Baby Boomers turning 65 this year, more TFSA room appears to come too late for those now retired or close to it. It's "a little late for me but will be very useful to my children," Hamilton says. "Not only will they enjoy the higher limits from a relatively young age, but moving my assets gradually to TFSAs will ultimately increase their future inheritance."

[...]

Hamilton warns a "Big TFSA" could be divisive, however: Seniors will receive expensive government benefits and pay little income tax while workers will pay higher taxes (since TFSAs don't generate tax refunds) and collect few benefits until retirement. "The potential for intergenerational conflict will be very high."
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Re: TFSA 2011

Post by Shakespeare »

Hamilton warns a "Big TFSA" could be divisive, however:
Which is why it will have to be capped at some point.
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Re: TFSA 2011

Post by AltaRed »

skepticus wrote:...or continued whittling down of the Canadian dividend tax break.
IMO, that is erroneous. Any reduction in investor dividend tax break marches in lock step with the reduction in Corporate income tax rates. The less tax corporations pay, the more they can distribute to shareholders, dollar for dollar. Of course, you have to assume corporations will continue to allocate the same cash flow on a pre-tax basis.
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Re: TFSA 2011

Post by Bylo Selhi »

Shakespeare wrote:
Hamilton warns a "Big TFSA" could be divisive, however:
Which is why it will have to be capped at some point.
Divisive because existing savers will push TFSAs to the max while spendthrifts will continue to ignore it regardless of how far the max gets pushed.

We need to encourage more people to save (and practice other financially responsible habits), more than to help those who already save (and already have financially responsible habits) to avoid/reduce their taxes.
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adrian2
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Re: TFSA 2011

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Bylo Selhi wrote:We need to encourage more people to save (and practice other financially responsible habits), more than to help those who already save (and already have financially responsible habits) to avoid/reduce their taxes.
OK, as I've welcomed your electoral sign on my front lawn, I have to ask for your concrete ideas about your above proposal.
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Re: TFSA 2011

Post by queerasmoi »

adrian2 wrote:TFSA boost would benefit everyone
Jonathan Chevreau wrote: Hamilton warns a "Big TFSA" could be divisive, however: Seniors will receive expensive government benefits and pay little income tax while workers will pay higher taxes (since TFSAs don't generate tax refunds) and collect few benefits until retirement. "The potential for intergenerational conflict will be very high."
Interesting point about intergenerational conflict. Reminds me of something Adrian Dix said last night in a leadership debate for the BCNDP (oops, politics! I promise this is on topic!). He called it an issue of generational inequity that the current generation of politicians grew up with excellent public services, funded by the tax system, and then gave themselves big tax cuts.
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Re: TFSA 2011

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1. One suggestion that I've made several times on this thread alone is to simplify the process of recontributing amounts withdrawn from a TFSA. There's been so much confusion and negative publicity about this, along with stories of people being assessed $1,000s in penalties for their errors resulting from that confusion, that I'm sure many others have been turned off from contributing to TFSAs out of fear.

2. Education, especially in middle and high school.

3. Encourage people to save for a rainy day or emergency fund by allowing them to earn the first $1,000 (or whatever) in interest tax-free. This used to be part of the tax regime until it had to be killed in the 1980s or early '90s when our deficits and debts got out of control. Perhaps now's a good time to restore it.

If you agree with me that we need to encourage more people to save, then please explain how raising TFSA limits accomplishes that. Steve's "potential prosposal" if it ever happens in our lifetimes, may attract more money to existing TFSAs but it's unlikely to attract more people to save using TFSAs.
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Re: TFSA 2011

Post by Rickson9 »

If TFSA limits are increased to $10k per person, how many Canadians will be able to take advantage of this considering the cost of living, children, etc. RRSP and then another $10k free cash on top of all that?

At first blush, it seems to me that increasing the TFSA limit to $10k per person helps the affluent more than the average Canadian.

Just my 2 cents. I apologize for taking this off topic.

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adrian2
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Re: TFSA 2011

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Bylo Selhi wrote:1. One suggestion that I've made several times on this thread alone is to simplify the process of recontributing amounts withdrawn from a TFSA. There's been so much confusion and negative publicity about this, along with stories of people being assessed $1,000s in penalties for their errors resulting from that confusion, that I'm sure many others have been turned off from contributing to TFSAs out of fear.
WADR, I see nothing complicated about the current rules. What's the confusion about "if you withdraw some money, you don't get the rrom to put it back until the following year". May I suggest if this is one line rule is confusing to some people, they need help in many other areas, too.
Bylo Selhi wrote:2. Education, especially in middle and high school.
Easy to say. Quite a few youngsters will yawn through the class. Paraphrasing a Romanian saying, theory is theory, practice gets us into trouble.
Bylo Selhi wrote:3. Encourage people to save for a rainy day or emergency fund by allowing them to earn the first $1,000 (or whatever) in interest tax-free. This used to be part of the tax regime until it had to be killed in the 1980s or early '90s when our deficits and debts got out of control. Perhaps now's a good time to restore it.
At current interest rates, your proposal would result in several times the current TFSA room of interest being sheltered. Not objecting to it, just pointing out that for low income people, TFSA's accomplish the same objective.
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Re: TFSA 2011

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Rickson9 wrote:At first blush, it seems to me that increasing the TFSA limit to $10k per person helps the affluent more than the average Canadian. ........... Just my 2 cents. ...........
I agree. Obviously Harper knows this since he announced it in an affluent area, GTA. You never know, but this may help him get a majority.
Since I want the TFSA to go up, I should vote for him.

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I have noticed some of the comments posted in this thread to be a bit sharp. I can't figure out why some members seem to be attacking others. Does not look good on us.
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Re: TFSA 2011

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adrian2 wrote: Paraphrasing a Romanian saying, theory is theory, practice gets us into trouble.
So that's where Yogi Berra got this one:
In theory there is no difference between theory and practice. In practice there is.
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Re: TFSA 2011

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adrian2 wrote:WADR, I see nothing complicated about the current rules.
We've been over this before. You don't. I don't either. Yet so many Canadians are that Flaherty had to intervene with CRA to stop them from fining 10,000s over this issue. Clearly what's simple for you and me isn't so simple for a very, very large number of people. You asked how we might encourage people to save. Surely one way is to make so simple that even those 10,000s of Canadians can do it without attracting penalties from CRA.
Easy to say. Quite a few youngsters will yawn through the class...
Agreed. So we shouldn't even try (harder) because it's going to be difficult? :shock:
At current interest rates, your proposal would result in several times the current TFSA room of interest being sheltered. Not objecting to it, just pointing out that for low income people, TFSA's accomplish the same objective.
Except that interest rates will rise and the equivalent TFSA room will be lower, perhaps much lower. (I recall when the exemption was $1,000 and you could get 10%+ from GICs that people complained that they couldn't even protect $10k from inflation.) And again, an $nnnn annual interest exemption is much easier for people to understand and for CRA to implement than TFSAs.

And yet again, "If you agree with me that we need to encourage more people to save, then please explain how raising TFSA limits accomplishes that."
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adrian2
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Re: TFSA 2011

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Bylo Selhi wrote:And yet again, "If you agree with me that we need to encourage more people to save, then please explain how raising TFSA limits accomplishes that."
You can lead a horse to the water, but you can't make it drink. In the mean time, I will not object to, and even applaud, raising the TFSA limits, no matter which party implements it.

RESP's were substantially changed for the better in the late 90's by the Liberals. That was a good thing, even though people who could not or refused to save did not benefit.

Is that so hard for you to do, i.e., applaud one Tory measure which benefits you and most of the forum members?
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Re: TFSA 2011

Post by tedster »

Hey, I think TFSA are a great idea. I only wish they had been introduced much sooner in my life.
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Re: TFSA 2011

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adrian2 wrote:Is that so hard for you to do, i.e., applaud one Tory measure which benefits you and most of the forum members?
This Tory measure doesn't benefit anyone until it becomes law. As it stands now it's merely a pandering promise premised on at least (a) a balanced budget at least five years out and (b) Steve's re-election, at least twice more. That's like counting your great-grand-chicks before their parent-chicks have been conceived, let alone born never mind laid any eggs. I give Steve a huge Canada future-goose-egg on this one ;)
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Re: TFSA 2011

Post by tedster »

Yabbut the current TFSA is still a good idea.
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Re: TFSA 2011

Post by DenisD »

Bylo Selhi wrote:If you agree with me that we need to encourage more people to save, then please explain how raising TFSA limits accomplishes that.
Simple. Higher TFSA limits mean our financial services industry can make more money from TFSAs. That means they'll spend more on advertising. And the media will probably promote it more too. Both will combine to convince more people to save in TFSAs. :wink:
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Re: TFSA 2011

Post by Bylo Selhi »

Yeah, stretching exercises, especially when you go as far as you can and then a bit beyond, are good for you ;)

BTW we also know that the Steve and Jimbo are all in favour of enriching financial services industry. They're trying hard by pushing private PRPPs over enhancing the CPP. I suppose that too will help the little guy a little and the the Bay Street Boys big time ;)
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Re: TFSA 2011

Post by ockham »

Call me a one note Johnny, but let me ask again: what is the public policy purpose of the TFSA, and how is that purpose furthered by the TFSA and by the doubling of its contribution limit?

Things we know are that (i) for lower income Canadians, the TFSA is a more tax efficient savings vehicle than is an RRSP, (ii) lower income Canadians, likely because they lack the material means, are in fact not contributing to TFSAs, and (iii) unless capped, the TFSA will create a socially unsustainable wealth gap between those who contribute and those who don't.

The idea of tax free investing is an aphrodisiac for habitual savers. I know because I'm one. The ockham financial empire will eagerly move as much money out of the reach of the taxman as the TFSA will permit. This does not yet make for good public policy.
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Re: TFSA 2011

Post by Bylo Selhi »

ockham wrote:Call me a one note Johnny, but let me ask again: what is the public policy purpose of the TFSA, and how is that purpose furthered by the TFSA and by the doubling of its contribution limit?
I too would like to hear/read the response.

IMO like many other CPC tax tchotchkes, they aren't designed to promote prudent public policy but rather they're designed to (a) pander to specific demographics that traditionally support the CPC and (b) to be "motherhood" issues that no opponent dare challenge, e.g. who could be against helping children to be active, seniors to split their meagre income, beleaguered families to save more, etc? Never mind that these sorts of measures fly in the face of right wing dogma that holds that you should reduce taxes across the board and then let taxpayers decide how to spend the extra money that ends up in their pockets.
The idea of tax free investing is an aphrodisiac for habitual savers. I know because I'm one. The ockham financial empire will eagerly move as much money out of the reach of the taxman as the TFSA will permit. This does not yet make for good public policy.
Agreed on all counts.
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Re: TFSA 2011

Post by Shakespeare »

IMO the higher the yearly limit the faster it will be capped - guessing $100K.
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Re: TFSA 2011

Post by kcowan »

Bylo Selhi wrote:I have no idea if we can afford it or not. My guess is it's a tchotchke since few Canadians max out their TFSAs today at $5k. ...
Given that these TFSAs are only 38% filled today, maybe this is an offer for knowledgable investors like FWF members. Yet by making it dependent on balancing the budget, he loses our support.

I don't get it. Like you say, if it was a core part of their future, it would have been in the budget.
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