TFSA 2011

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Re: TFSA 2011

Postby pmj » 09 Apr 2011 10:46

Rickson9 wrote: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.

It's unlikely that most people in a "low-income" bracket would see themselves saving $10k/year - so there's also a risk that these Canadians might see TFSA's with a limit as high as $10k as another device targeted primarily at the better-off.

I suspect that the benefits of TFSA's to low-income Canadians are not well-understood - and I don't see that raising limits will do anything to improve that. The increase is certainly nice for those of us that understand - and have funds available - but that's rather a selfish attitude. All members of society benefit if the poorer members of society have better savings opportunities.
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Re: TFSA 2011

Postby Bylo Selhi » 09 Apr 2011 11:37

adrian2 wrote: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".

The "gift" that keeps on taking (and confusing and confounding everyone from taxpayers to financial institutions to CRA.) Issues pop up again and again [my bold]
Finally, I’m reaching out to readers about a tax issue I wrote about before. Last June, Canada Revenue Agency sent letters demanding penalties from taxpayers who contributed too much to a tax-free savings account in 2009.

Some people had transferred a TFSA from one bank to another without doing the right paperwork. Some had taken money out of a TFSA and replaced it in weeks or months, not knowing they had to wait until the following year under the rules.

Because TFSAs were only introduced in 2009, the tax collector gave refunds when people asked for leniency. But the problems continue.

Hira Aggarwal filed a 2010 tax return and received an assessment notice, dated March 24. It showed her TFSA contribution room as $10,000.

“I suspected this wasn’t right since I’d contributed to the maximum in previous years and hadn’t withdrawn any TFSA funds,” Aggarwal said.

The CRA said she should ignore the $10,000 amount and go with $5,000, since its computer system had not been updated with 2010 contributions.

Has anyone else found a TFSA discrepancy on their assessment notices?

Noel Carisse, a CRA spokesman, said TFSA issuers had to send information to meet a Feb. 28 deadline. Because of the volume, processing could take a few weeks.

“Individuals should make sure the TFSA contribution room amount indicated on their assessment notice corresponds to their records,” he said.

IOW even if you abide by the contribution limits provided by CRA on a NoA and even if CRA admits that there numbers are out-of-date and may be incorrect, you're still penalized for exceeding your TFSA limits as a result of CRA's ineptitude. At least with installment payments, if you pay CRA what they request you won't be penalized even if it turns out that CRA's estimate was too low.

Why did Finance need to introduce such a convoluted, error-prone system for administrating TFSAs in the first place? (Note: I'm blaming Finance and CRA for this, not the CPC.)

And why were Steve and Jimbo so anxious to make a worthless promise to double TFSA contribution limits years from now, if ever, instead of getting Finance and CRA to simplify the convoluted, error-prone system? (Note: I am blaming Steve and Jimbo for that.)
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Re: TFSA 2011

Postby CROCKD » 09 Apr 2011 12:28

My account CRA online shows my 2011 contribution room as $10,000. In fact it is $15,000+ and this was deposited in a TDWH self directed TFSA on Feb.8,2011.
The difference of $5000+ is represented by the amount I withdrew from a Presidents Choice TFSA on Dec. 29, 2010.
I suspect there are many institutions who have not provided up to date information to CRA on withdrawals.
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Re: TFSA 2011

Postby BRIAN5000 » 09 Apr 2011 12:45

The "gift" that keeps on taking (and confusing and confounding everyone from taxpayers to financial institutions to CRA.) Issues pop up again and again [my bold]


Sorry for going off topic but a TSFA is only one aspect/tool used for financial planning and if people can't follow those rules how would anyone expect that they could come up with any kind of a financial plan or IPS on their own.
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Re: TFSA 2011

Postby adrian2 » 09 Apr 2011 13:44

ockham wrote:Things we know are that (i) for lower income Canadians, the TFSA is a more tax efficient savings vehicle than is an RRSP

Often repeated does not make it true: in many cases, lower income Canadians (e.g., under $40k annual income) do not always pay a low marginal tax rate. As shown elsewhere, MTR can be 60%..80%..100% for these income levels; an RRSP would be very appropriate in such cases.
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Re: TFSA 2011

Postby adrian2 » 09 Apr 2011 13:48

BRIAN5000 wrote:
The "gift" that keeps on taking (and confusing and confounding everyone from taxpayers to financial institutions to CRA.) Issues pop up again and again [my bold]

Sorry for going off topic but a TSFA is only one aspect/tool used for financial planning and if people can't follow those rules how would anyone expect that they could come up with any kind of a financial plan or IPS on their own.

:thumbsup:
For the vast majority of people, TFSA rules are about as simple as can be. Some intricate rules have been added lately to counteract trying to game the system, these new rules does not affect 99.9%+ of the people.
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Re: TFSA 2011

Postby adrian2 » 09 Apr 2011 13:51

Nemo2 wrote:
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.

FWIW, the mot-à-mot version is: "The theory [is] like the theory, the practice is what kills us."
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Re: TFSA 2011

Postby ockham » 10 Apr 2011 16:15

adrian2 wrote:
ockham wrote:Things we know are that (i) for lower income Canadians, the TFSA is a more tax efficient savings vehicle than is an RRSP

Often repeated does not make it true: in many cases, lower income Canadians (e.g., under $40k annual income) do not always pay a low marginal tax rate. As shown elsewhere, MTR can be 60%..80%..100% for these income levels; an RRSP would be very appropriate in such cases.


Fair enough, a point you keep making, in the hope that eventually we will get it.

In which case, even in theory, the TFSA does not serve a public policy purpose of, say, providing to low and lower middle income taxpayers a savings' vehicle more efficient for them than the RRSP (which we know they do not use).
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Re: TFSA 2011

Postby ockham » 10 Apr 2011 16:18

Bylo Selhi wrote:
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.


We're still waiting.
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Re: TFSA 2011

Postby Taggart » 10 Apr 2011 17:15

ockham wrote:

In which case, even in theory, the TFSA does not serve a public policy purpose of, say, providing to low and lower middle income taxpayers a savings' vehicle more efficient for them than the RRSP (which we know they do not use).


I think the TFSA is great for people of any income group who are able to save anything beyond what's necessary for the basic necessities in life, and who want the flexibility of withdrawing their money "tax-free" from this vehicle at any time.
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Re: TFSA 2011

Postby steves » 10 Apr 2011 17:51

ockham wrote:
Bylo Selhi wrote:
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.


We're still waiting.

OK.... Let's look at Daddy Warbux. He is 40, makes 350K salary and plans to retire at 65, live to 95.

Under the current $5K tfsa cap, his after tax annual lifestyle nut is $137,629 (5% ror, 2% inflation) He maxes his RRSP, maxes his TFSA and the remainder of his savings are directed to his nonreg pot, taxed 50% as dividends and 50% as capgains.

If the $5K limit to the TFSA is changed to $10K, his annual lifestyle will come in at $138872. Just over $100 a month in extra spending.... less than a 1% increase. Big whoop... he can afford to stock his wine cellar with one extra bottle of Chateau Lafitte-Rothschild ($1200) every year.
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Re: TFSA 2011

Postby newguy » 10 Apr 2011 20:17

steves wrote:OK.... Let's look at Daddy Warbux. He is 40, makes 350K salary and plans to retire at 65, live to 95.

But you're not trying to game the system. Have him work till around 50 and then collapse rrsp/rrif/non reg first then collect CPP GIS OAS and pull money out of the TFSA.

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Re: TFSA 2011

Postby steves » 11 Apr 2011 07:12

newguy wrote:
steves wrote:OK.... Let's look at Daddy Warbux. He is 40, makes 350K salary and plans to retire at 65, live to 95.

But you're not trying to game the system. Have him work till around 50 and then collapse rrsp/rrif/non reg first then collect CPP GIS OAS and pull money out of the TFSA.

newguy
Yes, I can do this, but I have to have something to compare it to. Do you want me to run the same 'retiring at 50' scenario without the TFSA gaming?
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Re: TFSA 2011

Postby newguy » 11 Apr 2011 09:37

steves wrote:
newguy wrote:
steves wrote:OK.... Let's look at Daddy Warbux. He is 40, makes 350K salary and plans to retire at 65, live to 95.

But you're not trying to game the system. Have him work till around 50 and then collapse rrsp/rrif/non reg first then collect CPP GIS OAS and pull money out of the TFSA.

newguy
Yes, I can do this, but I have to have something to compare it to. Do you want me to run the same 'retiring at 50' scenario without the TFSA gaming?

Actually, I didn't really mean to give you work to do. I was just pointing out something you already know, TFSA room is similar to a larger RRSP if you use it like that. The big advantages only happen when you use it to game the system to avoid clawbacks.

The comparison would have to be the same 5k TFSA vs 10K.

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Re: TFSA 2011

Postby zinfit » 25 May 2011 20:49

The allowable limits on my assessment was wrong. It understates my allowable contribution limit. When I contacted CRA they said their numbers were unreliable and to rely on your brokerage firms numbers. I will make copies of my statements for my protection.
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Re: TFSA 2011

Postby zinfit » 03 Jun 2011 11:06

Can a person convert their investments inside a TFSA into an annuity inside their TFSA? Once a person reaches retirement converting a TFSA to a 10 or 15 year annuity might make a lot of sense.
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Re: TFSA 2011

Postby tedster » 03 Jun 2011 11:11

zinfit wrote
The allowable limits on my assessment was wrong. It understates my allowable contribution limit. When I contacted CRA they said their numbers were unreliable and to rely on your brokerage firms numbers. I will make copies of my statements for my protection.


Yes the same happened to me. I called my brokerage and got them to write me a letter stating they had notified CRA in plenty of time. ISTM that someone in government should be aware of this.
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Re: TFSA 2011

Postby Bylo Selhi » 03 Jun 2011 11:25

tedster wrote:I called my brokerage and got them to write me a letter stating they had notified CRA in plenty of time. ISTM that someone in government should be aware of this.

Waste of time. They know their system is fucked up. At best it's a work in progress. Keep your own records in case CRA should challenge them.

Another anecdote: A couple of days ago I used CRA's MyAccount to verify some tax numbers. As it happened I also looked at my TFSA numbers. The last transaction they show is from 01/01/2010 even though ING has swept $5,000 into my TFSA on 01/01 in each of the past three years. So here we are 6 months later and CRA still doesn't know about the 01/01/2011 contribution.
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Re: TFSA 2011

Postby Gus » 03 Jun 2011 16:27

My 2011 tax return notice (and my wife's) both reported that we had over-contributed to our TFSA's by $15,000 each (we hadn't). They threatened us with monthly penalties. I assumed that this might be due to a transfer I had made from ING to RBC last year that hadn't been properly reported, perhaps as a withdrawal rather than a transfer. So. I phoned the CRA.

It seems that, no, the problem was that, for TFSA purposes, the CRA considered me a non-resident since 2000. Non-residents are not allowed to contribute to TFSAs. I did leave the country on an overseas assignment in 2000, but returned in 2001. The CRA accused me of not having reported my date of return to Canada on my tax return in 2001. I have, in fact, been a resident and reporting income every year since then. I have also been contributing to RRSPs and paying CPP, UI etc for several of these years. Nevertheless, the CRA maintains that if their records are wrong, the presumption of fallibility lies with the taxpayer and they insisted on me providing documentary proof.

Luckily, I still have our tax returns from 2001, which had been prepared by PWC. The correct residency return date to Canada had indeed been clearly reported on page 1. I sent copies of these and an uncharacteristically restrained and polite cover letter to the CRA. I assume that this will suffice, that they will quietly change their records and that they will manage to resist any tendency to apologize for their error. I'll let you know if anything else happens.
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Re: TFSA 2011

Postby Shine » 03 Jun 2011 17:50

I don't think one can rely on CRA's assessment of one's TFSA status. I received my Notice of Assessment last week, based on my TurboTax filing, that states: "Based on available information at the beginning of 2011, your unused Tax-Free Savings Account contribution room is $5000." I have contributed $5K each year, since the TFSA was initiated, in either January or February. I suspect the problem is that the bank is remiss in filing the documentation given that they are busy dealing with RRSP matters. For reference, I use BMOIL for my TFSA.

CRA is usually three to four months behind as well.
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Re: TFSA 2011

Postby tedster » 03 Jun 2011 18:01

My bank sent me a letter stating they had filed in February 2010 that I had made a contribution. If CRA is wrong about the TFSA contribution, who knows if they are right about their tax assessments?
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Re: TFSA 2011

Postby Shine » 03 Jun 2011 18:35

tedster wrote:
If CRA is wrong about the TFSA contribution, who knows if they are right about their tax assessments?


I can assure you that they are not. I made mistakes last year, the first year I did my own taxes via QuickTax/Turbo Tax, because my CGA retired and moved to Nassau. Two months after filing my return by Net File I received a letter and a phone call from CRA advising me of all of my mistakes and then they did a reassessment and charged me a few hundred dollars more, and, of course a penalty.

This year I did my taxes on Turbo Tax while watching the playoffs, and missed a pension readjustment deduction and overpaid taxes by nearly $600.00. Filed by NetFile and paid outstanding tax the same evening.

I called CRA the day after I realized my mistake and they said "don't worry". Last week I received my Notice of Assessment that did not account for my error. Now I have to do some TD ADJ form, which I can't find on Turbo Tax, so will have to fill it out and mail the form into CRA to try to adjust my assessment.

After all the annoyance, I am nostalgic for just having a CGA do my taxes and simply write a cheque for about $300. I have only done my own taxes for the past two years, 2009 and 2010 and I find the process nothing less than annoying, even using intuitive software.

It is like when your wife decides it is time to paint the house - just easier to get someone else to do it and pay the bill.
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Re: TFSA 2011

Postby newguy » 03 Jun 2011 18:42

Shine wrote:Now I have to do some TD ADJ form, which I can't find on Turbo Tax, so will have to fill it out and mail the form into CRA to try to adjust my assessment.
You can do it online if you have a CRA my account.

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Re: TFSA 2011

Postby tedster » 03 Jun 2011 20:23

I do not think I would ever want to do my taxes myself. The last time I did was to declare non-residency in '73 when we moved to HK. I did it for the two of us. Then when I came back, I started my own business and had a CA do it along with the company one. I hate this kind of thing.
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Re: TFSA 2011

Postby Shine » 03 Jun 2011 23:43

newguy wrote:
You can do it online if you have a CRA my account.


Currently I am awaiting a CRA My Account access code - apparently they are mailing this to me, however it has been at least ten days and now we have a postal strike - it might just be easier to fill out the form I printed out from the CRA web site and courier it to them - although I am not totally sure what documentation I need to provide for an adjustment...have to read some more but every time I start the Canadian Tire catelogue whistles to me and lures me into a better fantasy. :wink:
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